Jennifer Hammond's Short Sales for Real Estate Investors - Part 1 [podcast transcript]

David Randolph: My typical profit is actually $90,000 per house, and that's because I negotiate Short Sales. That's the topic of our conversation. You know, and I do that by working directly with the homeowner and the lender. These are not with realtors on the MLS. I don't go to the MLS looking for a listing that says Short Sale.

What it is, I work with the homeowner and then I negotiate directly with that lender.

Podcast Introduction: Welcome to the Jennifer J. Hammond podcast. Jennifer is a licensed realtor educator, speaker, and bestselling author. Jennifer's goal is to help you find your "YAY" in every day.

Jennifer J. Hammond: So, David, I am gonna just let you, one thing I've learned is that you know, when we have a topic like Short Sales.

There are so many questions, so we will take questions later on as, and again, as people pop in the room, everyone who's here, Linda, John, if you guys wanna ping people in the room as well. Help us make sure other people know about what we're doing, but again, we're recording it. So the great news is, of course, we'll be able to share this with our people later on.

So David Randolph, the expert in Short Sales, you've been doing this for years, and you really know as from the, I'm going to say from the viewpoint as a real estate investor. This is for somebody who is looking to get into real estate investing and really specialize in Short Sales. Not necessarily, and maybe you are going to touch on for the person who is actually facing a Short Sale.

They may benefit from this presentation as well, right?

David Randolph: Yes, absolutely. Yeah. I'm, this is from the perspective of the entrepreneurial real estate investor. Okay. So, I'll say some things on this presentation that you'll never hear anywhere else.

Jennifer J. Hammond: Okay. Well, take it away.

Introducing David Randolph - The Short Sale Expert

David Randolph:  Okay, well, welcome everybody. My name is David Randolph.

I've kind of pulled up an impromptu presentation for this. It won't fit into our time slot that we have. So you know, you can feel free to contact me and I'll send you the slides. I have a much longer version of this presentation. So if you text SHORT to my phone number 636-685-2990 now, not right now, because I'm busy with Jennifer, of course, but you know, later I'll send you the slides.

I always hated it when "educators" presented something and you wanted the slides, and you couldn't get them. Well, I give my slides away for free. So if you text SHORT to 636-685-2990, I'll send you the entire presentation that I have. That's an hour and a half.

So I don't want anybody to get too upset on YouTube or clubhouse or anywhere else, you know, because I'm not going to be able to cover the whole thing. We want to do question and answer. That's so much more important to be able to answer your free-form questions because, you know, I don't know what you don't know.

So let me go ahead and talk about Short Sales and what they are so that, you know anybody from newbie to expert can have some further understanding of it. So, you know, basically, you know, I'm David Randolph. You know, my website's TheDavidRandolph.com. It's real funny because John Lee and others kind of joked with me, you know.

DavidRandolph.com was taken by somebody else. And I'm like, oh no, oh no. You know, my whole real estate education career is down the tube.

People said, no, but wait a minute. Aren't you "The" David Randolph? Aren't you the David like, yeah, I'm "The" David Randolph take that website. So that's kind of how I ended up with that and stuff. My email is DavidRandolph@RealtyRenovator.com. That's R E N O V A T O R dot com. If you're on Clubhouse, just tap that profile.

You can see all that information too. But just to give you a little bit about who I am and my experience Jennifer knows me, but you don't. You know, this is a presentation as a real estate investor. Actually an entrepreneurial investor, kind of like John Lee is with his investing. So, you know, I'm not a, I'm not an attorney, an accountant.

I'm not even a real estate agent, Jennifer. Okay. I have very important real estate agents on my team. Okay. My power team, but not. Me, I'm not actually a real estate agent. I don't play one on TV. I'm not an actor. You know, and then none of this presentation, you know, this is that legal thing. Now, I know other professionals have probably an entire slide on the legal part.

But basically, guys, this isn't meant to be tax or legal advice. You know, anything that I'm saying, this is my interpretation. You know, my experience with Short Sales over the past 10 years, I've been doing this full time. This is my experience. You know, I'm the founder of Short Sale Profits and the founder of TheDavidRandolph.com.

A Full-time Entrepreneur's Journey

You know, why should you listen to me? Well, you know, I'm anal. Okay. I learned from the best, both local and national experts. I do a lot of research, you know, I read stuff. I buy stuff, I learn it, I implement it. I make a lot of money. Most of all, I like to develop processes and procedures. And that's what's key in Short Sales.

You, there'll be questions I'm sure about you know, Oh, how people hate Short Sales and the various reasons why, well, you know, I develop processes and procedures to make that so that you can repeat it over and over, you know, I am a full-time entrepreneur. I've got multiple, you know, businesses and different income streams.

You know, I'm a chemical engineer is my background, computer science and I retired from my corporate job in 2006 at the age of 42. My wife and I became full-time real estate investors in 2010. What happened in those four years in between? Well, it's called kids. Okay. And so, I actually quit my job and homeschooled my kids for four years.

Then. I go, Oh, 46, what do I do now? And Jennifer, that's when I started into real estate at that time. You know, I was like, Oh, what is this real estate thing? And I went to a three-day free conference and fell in love. But, you know, basically, you know, guys, I'm just a small guy. I'm not part of some big company as an employee of it.

And some syndication really, I'm just a regular real estate investor, just a small company, you know, my little, you know, LLC just rehabs about five to ten houses a year. You know, that's all we do. Now, one of my claims to fame is that all my renovated houses have sold in seven days or less, at list price or higher for 10 years.

They are drop-dead gorgeous. You know, my typical profit, actually, this slide is wrong here. My typical profit is actually $90,000 per house, and that's because I negotiate Short Sales. That's the topic of our conversation. You know, and I do that by working directly with the homeowner and the lender.

These are not with realtors on the MLS. I don't go to the MLS looking for a listing that says Short Sale. What it is, is I work with the homeowner, and then I negotiate directly with that lender. And so a little bit more about me. I've been so blessed in real estate to earn almost 3 million in my IRA retirement account.

Helping Rehabbers Get Started: David's Heart & Passion

So, I lend that out to other rehabbers. Okay. I'll lend them. My heart and passion is to help new rehabbers get started. So I'll lend them all the money to fix the house up. All the money for the purchase price, all the money for the points on the loan and all the money for the monthly interest payments.

In other words, you don't make any payments at all until you sell the house at the end of the loan. We'll skip that stuff. It's just about that. My claim to fame really kind of came through John Lee. Oh, he's on here, I guess. Take a look and see, but John Lee. His REIA group had me present in July of 2009, "The Short Story in Short Sales.

Okay. And 150 people showed up to John Lee's St. Louis Real Estate Association meeting (STL REIA) 150 people showed up. There was standing room only. It was crazy. They had more new members sign up than ever. They ran out of all their new member bags for the year. And then they all got mad at me at the end because I had nothing to sell.

There was nothing at the back table. There was no Saturday workshop. And anyway, so John Lee said, Hey, well, just do one on your own. Just do your own Saturday thing. So, I created one. And so ever since then, I've been teaching Short Sales, and I love it. You know, I have moved on to probably cutting my rehabs down to five a year this year, Jennifer.

But basically, let's talk about what Short Sales are. That's who I am. I don't have any pictures of my kids, and I'm not going to show you the why. Okay. We could do a whole session on your why, Jennifer. I'm sure that you should probably do that sometime, but we won't do that now.

My wife is beautiful. My kids are beautiful though, just so that you know, but let's stick to a Short Sale. So what is it? Okay. So a lot of people don't fully understand what a Short Sale is. A lot of people say, well, it's where the house is underwater. They say it's where you owe more than what it's worth. That's, you know, that the loan on the house can't get paid off.

Negotiating Short Sales Directly with Homeowners and Lenders

If they were to sell that home on the MLS, the proceeds from that sale wouldn't pay the mortgage off. That's not exactly fully true, Jennifer. What it really is. It has to include all the second loans, all the HELOCs, all the equity lines, the judgments, and the tax claims, like federal and state. It's the total debt.

It's not just the lender, you know, for the loan. Okay. The other thing too is, you know, in that Short Sale process. You know, a normal sale is only going to bring 90 percent of the list price, right? You've got to pay a six percent commission. You have to pay some inspection fees and closing fees. So, you know, you say, well, my loan is 200,000, but you can't list your house for 200k.

You won't get that much money to pay it off. So a lot of people, you know, get themselves in trouble where they owe more than what it's worth. Okay. You know, and so what happens is a lot of times, you know, a homeowner has a life situation, okay, where they lost their job that medical bills are not able to make that payment.

So, of course, the lender is going to foreclose on them. So, when that happens, when there's a pending foreclosure, you know, the homeowner usually only got about 30 or 60 days, you know, to sell their house. In the state of Missouri, okay, you get (2) 30-day letters. Okay. You know, states are different.

Actually, in Missouri, you only have 21 days where they can actually foreclose on that house. So this very difficult to sell your house on the MLS at that point. You know, Georgia's 30 days, Texas's 21 days. There's lots of other times, there's judicial, non-judicial. I wanna make it real clear, Jennifer, upfront, it's irrelevant whether you're in a judicial state or a non-judicial state.

Key Insights and Processes for Successful Short Sales

The short Sale process is identical. The only thing that's different is your marketing, how you find them, and how much time you have to do it. But you know, it's a federal thing. You know, a Fannie Mae, FHA, it's a federal regulation on how you process the actual Short Sale itself. Now, you know, in a Short Sale, a lot of times a home has deferred maintenance.

There are repairs, you know, that are needed, you know, the buyer, they can't afford to make those, those repairs to the house. So they really get themselves in a bad situation. You know, most buyers really can't go with the traditional, so, so let's switch to the buyer now. So if you are in a Short Sale situation, you need to try to find a way to pay that house off or sell it.

But, you know most buyers. You know, can't get a traditional loan you know, because the approval process takes too long. Okay. The bank wants to, you know, get that thing done or they're foreclosing in 20, 30, you know, days. So, you know, it really is tough for a buyer who gets a loan. So they need a cash buyer.

As is okay. So the buyer, you, the investor, the savior of the day is the cash buyer buying that house as is. Okay. You're not going to get to turn in an inspection report to the seller. Okay. You know, and this is what the bank wants because they don't want any money being spent on fixing that house up.

Something to keep in mind, guys, is that the lender. Must approve the buyer the buyer cannot change on a Short Sale. And it was funny in the old cowboy days of 2009, 2010, and 2008. When I started doing this in the wild cowboy days, the bank would not approve an LLC. That was crazy. As a matter of fact, we found the best one they would approve of was a single mother.

It was very strange, you know and so that's who they would approve. They wouldn't approve an LLC later. Things have changed dramatically over ten years. It's very well-regulated. The banks recognize, and they desire an LLC to buy it because they figured out we can fix that house up, and then we can sell it, you know, and then they can lend out to that, to somebody else.

The buyer cannot be related to the seller. It's very important. Matter of fact, all parties involved can't be related to each other. Now, the banks really are concerned about the seller not being related to anybody. The seller can't live in the house. After you buy it, the seller cannot rent the house out after you buy it.

That's very important. Okay. Now, I probably could skip some of this stuff here, but you know, these are just some things. Text SHORT to my phone number 636-685-2990, and I'll send you these slides because we won't be able to go through all of them. And these are just some things that you need to do in a Short Sale to be successful.

But, you know, if you just text short to 636-685-2990, or you know, tap my profile if you're on Clubhouse, but basically, what people need to know, Jennifer is in a Short Sale, you know, the lender is going to put a deed restriction. So you can't sell that house you know, for 30 days for any price at all.

Not even a dollar. It's very un-American, I think if you ask me, but they get away with it. And you can't sell the house within 90 days for any more than 20%. So keep that in mind when you get involved with Short Sales there. If you're getting a Short Sale with a Fannie Mae loan, you know, something that's not an FHA loan there's the possibility that there's that deed restriction.

So watch out for that. Don't think that, you know, for all of our wholesalers on this call in real estate, you can't just wholesale it. Now, Actually, I can, but that's another topic because I know how to do these in a land trust, and that's something that, you know, we could talk about also. But the general person is going to be stuck with this deed restriction.

Now, these are just real quickly. There are a set of documents that will have to be given to the bank and it kind of goes into two or three major sections. One's called an RMA. The bank has a request for mortgage assistance document that you fill out, and it requires you to turn in certain kinds of documents.

You know, and we can go through that in the Q and A session later. I'll skip it for now. But then we have another section called what I call the Realtor Documents. That's things like a listing agreement, a special sales contract, you know, it's the shorter form, wherever you're at in your city, you've got usually a long form and short form.

You want the as-is purchase contract, and a Short Sale rider, but importantly are the contractor estimates, some comps, and a letter of explanation there's a lot to that, but that gives you an idea that there's some paperwork involved, but when you know what it is in detail, it's super simple to do.

Now, here's a key. The bank is a 600-pound gorilla. Okay. And they are going to determine what they want for the house. They will send out a realtor or an appraiser to the home and do what's called a broker price opinion, BPO. That means that's a realtor getting paid very little money to do something.

It's terrible. And boy, in 2009 and 10, as you know, Jennifer realtors were scraping them by doing as many BPOs as they could for $35 and $50 bucks just to survive back then. And, FHA requires a full appraisal. Just keep that in mind.

Jennifer J. Hammond: And I was going to say, and I definitely, once we get past the 30 minutes and we go into questions, I want to go into detail because I have experience with BPOs and really want to go into the differences with some examples of the difference between a BPO and a full appraisal because they are very different.

And yet again, we start to talk in our jargon, and often, people don't understand. So I want to make sure that we explain that, and we will. I'm writing down questions as you go along, too, so that we've got lots of questions that we definitely want to flesh out, but definitely, there is a difference. And we want to highlight those differences so that people don't get confused.

David Randolph: Yes. Yep. Okay. Great. And so, and I don't, I'm not able to see any kind of chat questions anywhere. So you'll have to monitor any of those and stuff. So, anyway, the 600-pound gorilla, the bank, they're going to tell you, you know what you have to pay for that house.

So like the one, you know, well, I'm going to show just a few examples of some houses you quick. Case studies and give you an idea. I like that. I make, maybe I didn't say this Jennifer, but I make $50,000 to $150,000 profit on each house. And these are $250,000 houses. And that's in St. Louis, Missouri. I've got students in like nine States.

And so, you know, you make those kinds of profit. It's everywhere. But the result after they do this broker price opinion or the full appraisal is they tell you that I have to make $50,000 to $150,000 profit. They tell me the price. They say, if you want this house, you've got to pay $29,600.

And then I sold it for $275,000. But they tell you, okay, and what that results in is this thing called an approval letter. You'll get this very magical approval letter if you will, that states all these conditions on it. And basically, they're going to give you about 30 days to close on it. So it's going to take you 3 months, 6 months, maybe even 9 months to reach that point.

Okay. From when you start to help the homeowner out to stop the foreclosure date, so you can then process the Short Sale with the bank to do the appraisal, to do a few negotiations, you result in an approval letter that lets you go to a title company and close on it like a normal transaction.

It's just that the payoff letter from the bank is now at a very small number instead of the $200,000 they were owed on that $29,000 house. On it and stuff. But you know, so what is it? So basically just go through these real quick. You know, the lender is going to negotiate the sales price of the house.

You know, there's going to be a listing agent and a Short Sale processor. So I'm teaching you. Today, how to be that Short Sale processor to be that buyer, the buyer entity. Okay. It's very important for all parties involved to be unrelated on paper. So that's another discussion. We have people on Clubhouse who are very well-versed in "on paper".

They'll know. They, her thought just went through her head. All he, David is saying, David Randolph, comma, manager. David Randolph, comma president. You know, David Randolph, you know, comma, this. Okay, so I know Linda's going, yes, David, you're exactly right. Okay, you know, she, she's our tax, or, you know, accountant, attorney, or accountant person.

And that's really important, you know. To be unrelated on paper, but your role will be as a Short Sale processor. You will have a listing agent on your team who will do the listing. Now, in the old days Jennifer, I didn't actually use a realtor. I've got a series of documents. I gave the bank where actually, you know, at the end they said, okay, you know what?

We don't need a listing agent, but today I'm old and I don't want to go to that trouble. And so I'd rather just pay a realtor to let me do all the paperwork, give it to them, and they post it up on the MLS.

So, you know, people need to understand that the bank's going to foreclose on that house unless they get paid in full. They're not going to stop their unrelenting. They will take it to foreclosure. Okay. You know, and the borrower in most states except for Arizona will have a deficiency. They'll owe the balance that's not recovered by the bank.

Instead, if they do a Short Sale, there's no foreclosure, and they can get maybe a $3,000 check at closing from the bank. Not from you. Never, ever. Ever pay the seller, the homeowner, any money from you at all, that's, that's fraud. They don't do that. The bank will pay them, and the borrower, if they have a foreclosure, they're going to have over a 300-point hit on their credit score. It's going to be there for five to seven years. You know, the borrower might have to file bankruptcy. That's going to hurt them for five years.

Jennifer J. Hammond: David, let me interrupt you here for one thing because I think it's really important and you didn't put it on the slide, and you didn't say it, but one of the purposes here, obviously, this is a real estate investing strategy, but also as you're going through all these things, you are also finding a way to help somebody.

Who has gotten themselves in a situation, and you're looking at a way to really solve a problem? Cause I think so often, you know, we glaze through that, and we just don't think about how important that is to help someone. So I want you to continue in a minute, but if you don't mind, would you just share, we can go well past our 30 minutes, don't worry, but I just want to make sure that you would share a story of how you've helped somebody who was in a situation with a Short Sale?

Because I know your heart and I know how valuable it is to you that you are actually helping people with this process. You're not just one of those people looking to get rich off of someone else's pain and misery.

Will you share a story?

David Randolph: Absolutely. Jennifer, this is why my wife and I, in 2009, brand new to real estate decided to go into Short Sales. I don't want to say that it was a church ministry for us, but it was a method of buying homes where we felt like we could help families out, and that's the key number one thing you need in a Short Sale is the homeowner, the seller needs to hear that you have a heart to help them.

It is not about calling them on the phone in a foreclosure situation and saying, Hey, David said I can make $50,000 to $150,000 profit. Would you let me do a Short Sale, please? No, that's not what you do. You must have a heart to help them out. The Short Sale is just the end result of all these options that they can't do.

Okay. They don't have the rich uncle with $15,000 to catch the loan up. You know, they, they don't have the money to fix the mold and the roof, you know, you have to be there. To help them out that, you know, my slide here, my thing that you just talked about is the gratification from helping families out.

They cry at the closing table with relief because this burden has been lifted from them. The bank's been hounding them for sometimes months and months, and they don't know what to do. They can't sell their house. They won't get the money for it. And then you step in and find a solution, and I will tell you that 80 percent of the time, it's a Short Sale for them because that is their only particular option.

They cry at the closing table; Jennifer, I cry too, because I'm making a lot of money. So you know, and I'm not kidding. We do both cry at the table. You know, we, the buyer, we, the real estate investor, the rehabber, even the wholesaler, you know, we're bringing up the value of homes in subdivisions because we're restoring it to full value.

And we're selling it at a higher price. Okay. We provide a lot of jobs to many people, you know, versus sitting there and it decaying. So let me go through and pull up a slide about a case there. I'll skip a few slides. So here we go. We'll do a case the, what you just asked for, we'll talk about this house here.

Case Study: Turning a Flooded Property into a Profitable Venture

So this was an 88-year-old lady. This is a house in O'Fallon. I'm very open with what I do. You can look at all up on public records. Okay. On it, this is a house. O'Fallon, Missouri. This was an 88-year-old lady who had a ranch house and lived by herself. It just happened to be at the end of the subdivision where the subdivision was going up a street.

You know, the whole subdivision was higher than her. And so it rained very bad, a bad rainstorm and, and the sewer systems weren't so good in this neighborhood and the rainwater, it's like a flash flood. And so the rainwater is coming down, and a tree limb hits her basement window. Okay. And it was not a walkout basement and it broke the glass, and it filled her basement up with water.

And so she heard this noise, and she went over in the kitchen and started to go downstairs to hear the nine stepped in water on the first step. Her basement was full and it was a terrible situation. And you know, the bank, basically said to her well, you need to file for insurance.

Okay. They wouldn't do anything to help her. So she, you know, she couldn't make her payments because she couldn't fix the house. Insurance said, well, you don't have flood insurance. So you're out of luck. So the house molded she had to move. Out the city condemned it, and here she is arguing with the insurance company and her lender, and neither one would do anything, you know, for her.

She didn't have the huge amounts of money needed, you know. I bought the house and put $71,000 into it. She didn't have that kind of money. She didn't have flood insurance, and so, you know, I stepped in and said. To the bank, you know, look, here's the regulations. Okay. Here's the statement.

Impact on Homeowners: Emotional Relief and Financial Rewards

So basically, you know, I applied knowing what the Short Sale regulations and rules were. Okay. And stepped into that case and was able to force the bank into doing a Short Sale. Okay. So just real quickly, as an example you know, I don't want to do a hard to any examples in our 30 minutes, but to give you a perspective, you know, since we're talking about this lady, I was successful.

I put $71,000 in, and I fixed it up. I sold the house in 2 days, and I had 6 offers. I listed it for $184,900. It sold for $205,000. You know, like I said, all my houses have sold in 7 days or less, at list price or higher, for 10 years. I put them up at a fair price. And then people bid them over, and that's kind of not my fault.

But anyway, and this is 2015, this is before the crazy stuff. And my houses have sold like this for 10 years. So, this current market doesn't mean anything to me. I've always said, you know, well, just is there one buyer left? That's all I need. I don't care what the market is. I need one buyer, but I sold it for $205,000.

Okay. So what do y'all think that I paid for it? I sold it for $205,000. I put $70,000 in it. So I had to pay less than $130,000, right? Because I wouldn't make any money. But what do you think I paid for it? Any guesses out there, you know, throw it in the chat bar and the YouTube chat box or whatever.

But well, Jennifer, what do you think I paid for the house? Less than $130,000.

Jennifer J. Hammond: So what about maybe $50,000? Did you pay $50,000?

David Randolph: Woo. That's good. Most people say $120,000 because that's the MAO formula (maximum allowable offer). So that is almost 120, but Jennifer, you are the true real estate investor. Okay. For years, and I like your style.

Okay, but here's the problem. You're way too high.

Jennifer J. Hammond: Wow, $33,900!

David Randolph: I made $99,600 on that house. Okay, with that stuff. Anyway, so you know I could go through many, many more examples. We will not take the time to do that. Okay. And stuff. So I'll just try to fly through some of these. There are many, you know, many examples out there.

I'm very open in what I do.