Short Sale $100k Case Study By David Randolph

 

In this fast-paced discussion, Stacy Rossetti is joined by real estate coach and short sales expert David Randolph. He presents practical tips and strategies for raising a hundred thousand through a short sale.

What You Will Learn:

• How to find a $100K profit on one house
• How to negotiate with the bank for a $100k profit on one house
• How to make a $100K profit on one house tax-free

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Watch the episode here

Listen to the podcast here

Short Sale $100k Case Study By David Randolph

David teaches short sales. He’s the REI USA teacher for short sales. The truth is, I am so excited about the next couple of years. I would love for you to give a brief update on what you think is going to happen in the next couple of years. I want Darlene to do this as well because of the mortgage crash that is about to happen. What do you think about that?

I’ll cover that in my presentation. That’s what everybody always wants to know.

Thank you very much for hopping on. David, I’ll give you the floor.

Welcome to the REI USA Summit for raising capital. My presentation is on how to raise a $100,000 profit short sale case. Every presenter is going to have a different avenue or way of raising $100,000. You can go borrow it, syndicate it and do things. What I’m going to present to you that you’re probably going to know with other people is there’s one way to raise $100,000 and it’s to sell a house.

You can sell your lawnmower or car but how about if you sell a house? That’s a little hard to do. Most people rehab houses and sell them for $20,000 profit. Maybe the good rehabbers do $30,000. It depends on how much Mike, our wholesaler here, is charged out for his wholesales. Mike is coming up after me on wholesaling.

With short sales, you’re able to make a $100,000 profit on 1 house. I thought, “Stacy, this will be a great presentation since my wheelhouse is short sales.” I don’t do foreclosures. If you want to know all about foreclosures, you go to Darlene. If you want to learn that little niche and piece called the short sale, that’s my area. I said, “I’m going to pull out a case study of a house that I made a $100,000 profit on.” That is what my presentation is going to be about.

Everybody always wants to know what the data is. They’re always like, “What’s happening in the market?” The homes are selling so quickly and there’s a foreclosure moratorium that was in place for two years. I’m going to give you a quick update. I’ll give you the reference to the article and pull out the piece that’s important from it.

It’s the Black Knight’s report here. Everyone needs to know that the mortgage moratorium ended July 31st, 2021, after eighteen months of millions of people not making their mortgage payments. The very first month in August 2021 alone, foreclosure starts, those things that Darlene has been waiting on for eighteen months.

Darlene has had a tough time in foreclosures at the courthouse steps and that is part of her business because there weren’t any foreclosures. In one month alone, in the first month, they increased by 27% on foreclosures. Does that affect me on short sales? Not one bit whatsoever because I was doing short sales the whole time. As I’ll explain the definition of a short sale, all short sale is you missed one house payment. That’s it.

 

You don’t have to be on the courthouse steps. You can do a short sale when they’ve missed one payment. I will tell you that if they have a foreclosure date, they’re highly motivated and so your success rate dramatically increases. That started in August of 2021. In March of 2022, there were over one and a half million seriously delinquent loans. That means people are over 120 days late on their mortgage.

Most of these are 18 months to 2 years late, with over 1.5 million homeowners in this position. I want you to put your investor hat on here. This is not being a realtor. This is being an investor. We make money and profit from these houses. We reach out and help these families out. There are one and a half million of these people in trouble.

This is MBA data. I got the reference from the Mortgage Bankers Association. This is the report that just came out that the delinquency rate for all loans in America is 4.1%. I want you to focus on that last line at the bottom. You’re asking Stacy about what’s going on in the market. FHA delinquency rate is 9.8%. Can you imagine that? 1 out of every 10 FHA loans in America is delinquent.

That is cataclysmic. I can’t even say or spell those words but that is horrible on the FHA side of that. These were some recent statistics on the number of people and how it breaks it down between Fannie Mae, FHA and other types of loans. Here are some more Black Knight data. This shows you the forbearance plans and their explorations. It’s hard to read that but those high bar charts are back in the October ‘21 timeframe. That’s when those forbearance expirations took place, which sent these people into a panic because they couldn’t hide behind COVID anymore.

We see the ramifications as the banks staff up to handle it. I’ll give you a perspective. I want you to focus on the left-hand side. In a normal month and time, pre-COVID, 30,000 a month is about what happened. That’s a lot of houses, even just for the normal market with it. During COVID times, you saw it was greatly reduced on the right side. That’s not what I want you to calculate out.

I want you to go back to my 1.5 million number and divide that by 30,000. That’s how many and how long it would take to be able to foreclose on everybody. We’re going to be busy with short sales and foreclosures. Darlene will never be able to retire. You got to check out her presentation on foreclosures. She’s going to have foreclosures for a very long time because of the mass quantity that is in there.

Sometimes, people say, “David, home prices are rising like crazy.” I agree. I had a student that listed his home for $245,000 and he sold it for $302,000. That’s the best of both worlds. On the side of selling, the prices are going up but on the side of selling, you can do a short sale and look at making $100,000 on a case study.

I’m going to show you what people say. There’s not going to be any short sales. Here’s a report from 2021. What it shows you is that if you add the 2 together, 29% of all FHA loans have less than 10% equity. It’s math. What is a short sale? You owe more than what it’s worth. That’s two numbers. What you owe minus what it’s worth. What it’s worth has been going up but everybody forgets the other number. What they owe has always been going up too. There are a lot of them.

It doesn’t matter. You don’t even have to have somebody underwater. This is a terrible statistic for many years from Black Knight that says that homeowners in foreclosure that have 40% equity could snap their fingers and sell their home instantly and not go into foreclosure. 1/3 of those or 30%, will lose their homes to foreclosure, short sale or deed in lieu because it’s not about the debt or what the house is worth. It’s about their mental state.

[bctt tweet=”The short sale process is a federal role. The only thing that changes between judicial and non-judicial is your marketing efforts.” username=””]

They are in trouble and they need your help. They lost their job. They’ve got health reasons. They can’t make proper decisions and you need to step in and be able to help them in that short sales situation where they can’t make that decision. There are 1.6 million fewer jobs in 2022 than in February of 2020 during the pandemic.

We think this market is great. I can’t hire anybody. I’m hiring people I can’t hire but yet there are 1.6 million fewer jobs out there. In March of ‘22, the number of permanent job losers was 1.4 million. That’s a lot of people. It’s 1.5 million who can’t make their payment. I bet that most of those 1.4 million permanently lost their job. This is a teaser here. There is a schedule for who’s being foreclosed on and when. It’s interesting.

I’m going to fly through this because if you’re an REI USA member, you probably already know who I am but the caveats on this are its educational training purposes and not any of those things on there. I’m not a realtor guy. I wanted to be clear. I am an investor. I have them on my team. I’m not an actor. None of this is legal or tax advice. This is my experience over the past years. It’s a little bit about me. I’m an engineer and very anal.

I’m a full-time entrepreneur and chemical engineer. I quit my job at age 42. I homeschooled my kids and then they went to college and I went, “What do we do?” I started real estate with my wife in 2010. I’m a small guy. I’m not a syndicator. I don’t work for somebody else. I’m a regular guy but one of the things that’s special about what I do is I’m a rehabber, 5 to 10 houses a year. All my renovated houses listed under $260 have sold at list price or above for years. I make $90,000 profit per house on an average. I make $50,000 to $150,000 profit on each house by negotiating short sales. I want people to write this down. This is not a short sale on the MLS.

I do not work with realtors on the MLS who have a short sale classification. I work with a homeowner and negotiate with the bank. I do the negotiations. I don’t pay a flat fee to an organization to do short-sale farming. I teach. I do in my business, which is what you’re about to see, the negotiation of the short sale with the bank and the homeowner. With short sales, I have over $3 million in my IRA that I lend out to other rehabbers. My heart and passion are to help them get started. I’ll lend them all the money for everything.

In 2018, I started doing one-on-one coaching because of that. In 2019, I presented my first ever presentation on short sales and to summarize, I’ve been teaching short sales ever since that time. People found out what I do, so I’ve got several workshops. What is a short sale for those on here who may not know? I highly encourage you, if you’re not a member of REI USA, to join in because you’ve got recordings of each of the supergroup leaders teaching the subject.

I’m not going to teach you short sales but my short sale is where the homeowner has more than what it’s worth. Write this down. It’s not the loan or the mortgage. People so often think that it’s the loan that’s underwater but it’s not. It’s all of the debt. If they have a credit card judgment, a federal tax lien or a second mortgage, it’s the sum of all the debt compared to what I can sell my house for. People forget about that.

With the foreclosure, there’s usually a pending date coming up and it could be different in different states. In Missouri, they give you two 30-day letters. You might have 30 or 60 days. That’s not a lot of times to sell your house on the MLS the traditional way. Usually, the house is in bad shape. You got a cash buyer. Georgia is 30 days. You are lazy. Missouri is 21 days. We have a lot of Georgia people. I offended them but you do. You have nine more days than I do to stop that foreclosure and stuff.

Here’s something I get a lot of questions on to. Judicial versus non-judicial. It’s irrelevant. The short sale process is federal. The only thing that changes between judicial and non-judicial is your marketing efforts. How long do you have to mail letters? How long do you have them pull their head out of the sand? The process of the negotiation and the paperwork with the bank for them agreeing to a lower price is identical.

 

Buyers can’t get a traditional loan and that’s because the banks want to cash as-is buyers. I’m going to fly through these. The bank is going to also help to pay them some money. If they don’t do it, they’re going to have a 300-point hit on their credit score. They may have to file bankruptcy if you don’t step in to do a short sale. You understand a little bit about what a short sale is. You do this for gratification and to help families out. They cry at the closing table with relief that you took a burden off of them.

I’m crying because I’m going to show you a case study for $100,000. We’re both crying at the closing table but for different reasons. They’re happy. We provide lots of jobs. Here’s the case study. Short sale case study $100,000 profit. There’s your address call. Look it up in public records. I’m very open to it. To recap, I flew through those slides. If you want the slides, text SHORT to (636) 685-2990. I’m this engineer and I always hated when people did presentations and didn’t give you the slides. You have to write your hand notes, have it and want that website.

I always get my slides out to anybody that wants them. Contact me on that phone number. This is a short sale. There’s the address. Look it up on public records. This happened to have sold in 2012. What happened to this? How did this short sale work? What did we do on the short sale to get a $100,000 profit? What were those numbers? Let’s work it backward. This is a short sale that was whole-tailed.

Wholetailing is a combination of selling your home retail or wholesaling it to another rehab. Wholetailing has taken a home that doesn’t need any work. You sell it to a retail buyer at a reduced price. They get a great deal from you and you don’t have to do any work with it. I say my whole cost on this whole house was $500. I replaced some outlets in the basement because some kids stole the outlets and I didn’t want wires hanging out.

I had to replace a ceiling fan remote because that would tick me off if the remote didn’t work for the ceiling fan. I sold the home for $370,000. It was a big house, 6,000 square feet of living space. That’s a nice house with an in-ground swimming pool with it. What do you think I paid for it? What’s $370,000 minus $100,000? I paid $269,000. I made $100,200 in profit. Does that answer your question on how to raise $100,000 in the capital? Just sell a house. My method is short sales.

Here’s this little caveat here to make it a little interesting. What’s the one thing they say about real estate guys? It’s the location. That’s pretty universal. Everyone says that about real estate. The other one says, “It depends.” You ask a real estate question and the answer is it depends. I want to introduce a new one for you on this one here. This was done in a Roth IRA tax-free forever. That $100,000 is never going to be taxed at all. Is that sweet? You can do short sales in your IRAs with it.

I always like to give out freebies to those that are in REI USA. If you text SHORT to my number, I’ll give you the one document that starts this entire process which you can use. It’s what you have to do with everything I talked about in short sales. “How did this work? What were we doing? Who are the parties? What were the amounts? How much was the loan?” People always ask me that. I want to be honest with you. I don’t care what the loan is. You can look in the archives of other houses that had done in REI USA and see where I bought a house for $29,600 and sold it for $275,000.

It doesn’t matter to me what the loan is. It does not affect the value of what you pay for the short sale. The loan does not affect the value you pay. I paid quite a bit for this house. I paid $0.50 on the dollar. They owed $440,000 and I had paid $260,000. It’s one of the worst on a percentage basis that I have done. However, when you have a gross magnitude of $100,000 profit that you sell like that in your Roth, you don’t pass it up.

Here’s what was special about this. The first mortgage position was with a credit union. The second mortgage position was also with a credit union and those are very difficult because what happens is credit unions don’t have to follow the same rules as Bank of America, Wells Fargo or some of the other big banks that have Fannie Mae or FHA type of loans.

[bctt tweet=”Never do a short sale if you don’t like the deficiency of zero. You need to have integrity.” username=””]

In this particular case, I was able to get that price that they accepted for it but it’s not as easy of a process as you have in a normal short sale with it because, for one reason, the credit unions do not have to forgive the deficiency. The deficiency is the difference between these loans of $400,000 and the fact that I bought them for $270,000, there’s a $130,000 deficiency. They came after the homeowner for that. They don’t forgive the deficiency.

I teach my students in REI USA to never do a short sale if they don’t like the deficiency of zero. Credit unions don’t do that but you can’t do the short sale and make $100,000 knowing that they’re going to come after the homeowner for the deficiency. You can’t do it. You have to have integrity. I said to the homeowner, “I have to back out of the deal. I can’t buy it. The credit union is coming after you.” She said, “No. I want you to do it anyway, David.” She had her attorney write me a letter compelling me to buy the house because she would file for bankruptcy later. I said, “No. I can’t. I told you when I started that I wouldn’t do this deal if you didn’t have a deficiency wiped to zero.”

Here’s what you can do. It is a little trick. With the banks, I went back to the credit union and said, “What would it take to wipe the deficiency out?” They said, “Pay us $25,000 more and we’ll wipe the deficiency out in a heartbeat.” I could have $125,000 on this house but instead, I made $100,000 and she had 0 deficiency with it. That’s the case study itself.

Where do you find these ads? How do you find cases like that? It’s all about marketing. If you have trees in a forest, do they make a noise if they fall? I’ll answer the question. The tree falls in the forest and you’re not there doesn’t make a noise. You need to go to the forest and mail people. In all states, the lender is required to post the legal description for a certain number of days in the legal newspaper or where the property is located.

I don’t teach you to go to www.ForeclosureMe.com. I teach you to go straight to the source. You’re going to go to their website and get that data from there. The homeowner is not expecting to get any money from the sale because they’re underwater but you can get the bank and pay them some money. They’re going to live in the house for a long time. You find these people in the county legal newspaper and the internet version of the website. You need to turn your offer in on the house cash as-is.

That’s where real tours make a mistake. They have a traditional buyer with a loan. Never turn your offer in like that. Turn your offer in cash as-is. You can come to closing with a loan. People don’t understand it. I don’t buy my houses in cash. Why would I do that? That’s crazy. You should always have your house encumbered with a loan. You need your money in the bank dry and ready to go. Never use your own money. That’s why we’re doing this entire all-day summit raising funds. Make your offer cash as-is and come to closing with a loan.

Here’s one source of how to get them. I’m going to show you the county legal newspaper. In Missouri, Kansas City and St. Louis, this is what it is. I did an entire presentation on one of the things they can get to it if they join the membership. This is not mass marketing. There are 50 people a month that I’m targeting. That’s it. I’ve got over $3 million from mailing to 50 people a month. This isn’t $5,000 a month mass marketing that you see a lot of people doing out there. You do need multiple letters and multiple touches. It’s know, like and trust. There are a lot of important factors in there. With that, you tell them how you can avoid foreclosure. There are no out-of-pocket fees.

If you need to remember 2 or 3 things, this is one of them. You do not charge them any money to do the short sale. You are not a loan modification officer. You have no license. You’re an investor. I’m doing this for you. You tell this stuff in the letters here. If they put it on the MLS, they’re not going to get as much money because you’re going to lose commissions and everything else with it. In summary, in St. Louis, there are 40 a month. In St. Louis County, there are 300 a month. How many do you need? I rehab 5 to 10 houses a year. With the moratorium and the COVID, there are five times as many. One and a half million people are sitting out there.

These numbers are slowly increasing in foreclosures and it’s simply because the banks are not staffed up to handle it. Everybody in this group ought to be getting into Darlene’s training program for foreclosures that she’s got with REI USA. If you want to help families out that are desperate and going to lose their home and they owe more than what it’s worth, you can’t sub-to it. Why do you want to take over $400,000 for a house you can buy for $250,000? You can’t sub-to that thing. It is a very small niche. Stacy, tell me if there are any questions. I have to wrap it up.

 

Tell everybody when you meet so they can hop on because this is a process that you can’t learn in 30 minutes.

It’s on the fourth Wednesday of the month at 8:00 PM, Eastern Time. Join because you get all the recordings so you can go back and get caught up on those.

You go over those every time in your session.

I cover a different area because you can’t teach short sales in 30 minutes. I pick an area. You need to be a member so you can go back. Each month, I cover different marketing, negotiation and paperwork. Each session covers different stuff.

At least they can hop on and ask you questions. It’s a good start to utilize you.

Every session is an open question type of thing. It’s about what I presented and any questions about short-sale. I give you the freedom and permission to call me directly with a question. If you’re working on a short sale and got a family in trouble, don’t wait until the next monthly Zoom. Go ahead and post it on Facebook. I’ll see it there. If it’s urgent, feel free to text me. I can tell you what I know about that bank, that lender and what you might need to do to stop that foreclosure. With a VA loan, we stopped two hours before the foreclosure. It’s not fun and easy. You’re not going to do it if you don’t know what you’re doing. Come, learn and do that.

 

Important Links

• https://www.REI-USA.com/david-randolph/

 

About David Randolph

As a successful engineer, I fell in love with real estate after a 3 day conference where I learned enough to know there are many possibilities in real estate to earn great wealth. I wanted to start making large profits as an investor in real estate so I could live independently of my stock market and mutual fund investments and be able to leave a legacy to my children.

My wife and I paid for lots of real estate training and materials but each time they were lacking in the actual documents you needed or were outdated by the time you opened them. When we realized that if we knew how to renovate and sell houses, we could do anything we needed like wholesaling it instead or keeping it as a rental house.

We just needed the best way to purchase the houses so that is why we started negotiating Short Sales in 2010 with the bank to buy houses at incredibly low prices. When we developed the Tools and procedures to negotiate Short Sales directly with the bank and the homeowner, we found we could improve our results each successive time by avoiding deal killing mistakes other investors made over and over.

We took a business approach to every detail and documented and systematized the procedure and developed repeatable checklists/procedures to always effectively negotiate Short Sales with the bank. We consistently make $50K – $150K profit in both rehabs and wholesales on both pretty houses and ugly houses. Investors wanted to know how I could sell them in 7 days or less at list price or higher for 8 years straight and never miss a buyer’s lender’s appraisal. They wanted to know how this could be done in their retirement accounts tax free like mine.

Now I am teaching groups of other investors through proven successful online video courses and materials and providing One on One coaching in real estate and Short Sales showing the crucial fundamentals of the process. I am coaching others in all real estate transactions who are shown when and what to do next and how to do it.

I am teaching large groups in Live events to be free from the traditional real estate education tips that are superficial and instead are showing them the Real Tools that work in my business every single day. Now other investors are buying houses fixing them up and selling them for LARGE profits.

Now my students are leaving their corporate day jobs and devoting their life full time to the pursuit of real estate and their families. Now others are satisfied and confident of their ability to buy houses very cheaply and stress free in wholesaling or rehabbing and selling them at large profits.