{"id":205,"date":"2021-01-18T00:00:00","date_gmt":"2021-01-18T00:00:00","guid":{"rendered":"https:\/\/wordpress-655153-2137993.cloudwaysapps.com\/?p=205"},"modified":"2021-01-16T20:44:08","modified_gmt":"2021-01-16T20:44:08","slug":"msfire8","status":"publish","type":"post","link":"https:\/\/msfiremama.com\/msfire8\/","title":{"rendered":"New England Short Sale Story"},"content":{"rendered":"\n

Amelia* liked to browse Zillow and see what properties were available. She had started to target a particular suburb of a New England city, but was very casually investigating the market. The town was renovating its city center to allow better access to public transit and Amelia was tracking the improvements. She believed the area was up and coming and decided to check out a house there that was being sold in a short sale. <\/p>\n\n\n\n

\u201cIn the back of my mind, I was thinking of purchasing an investment property. My parents had moved out of the city and were paying city rents [to be here during the week] so I figured I could get reliable tenants,\u201d Amelia said. It was 2016 and she was about a month away from giving birth to her first child.<\/p>\n\n\n\n

A short sale is when an owner owes more on the house than it\u2019s worth. A property owner will need permission from the lender in this type of transaction. A short sale may be preferred to a foreclosure, which will stay (and damage) a person\u2019s credit report for seven years and can make getting a future loan very difficult. An owner will have to prove to his or her lender that a hardship exists, such as a lower income or an increased debt-to-income ratio. A homeowner in this situation will likely have to contribute any savings to minimizing the loan payoff loss. A lender will accept receiving less than the mortgage is worth because a lender can recover a larger amount of the loan payment than if the property is sold through a foreclosure. Auction.com has a worthwhile read on<\/a> the difference between short sales and foreclosures, if you want to get into the weeds.<\/p>\n\n\n\n

Amelia attended the open house and found the owner had inherited the property from her father. The owner got into a car accident and became addicted to opioids. <\/p>\n\n\n\n

\u201cThere were a lot of people at the open house. I think a lot of people noticed the potential,\u201d she said. The property was located at the top of a hill on a dead end street within walking distance of a train line. Amelia described the house as dark and smelling of cigarettes. The fans had mold on them and the owner\u2019s family was home while people staked out the property. <\/p>\n\n\n\n

\u201cIt was not the type of open house you typically think of when you\u2019re talking about real estate.\u201d<\/p>\n\n\n\n

The real estate agent managing the short sale told Amelia that if she was interested, she should put down a bid and the top bidders would be called the next day. Amelia put down a number and did not expect to hear back. She decided she would cap her bid at around $284,000. A similar home in good condition in the area cost between $400,000 and $500,000.<\/p>\n\n\n\n

\u201cI had no concept of what it would cost to renovate the place or the extent of the renovations,\u201d she said. \u201c At a bare minimum, we\u2019d knock out the walls, redo the kitchen and clean it up.\u201d<\/p>\n\n\n\n

The next day, the agent called Amelia and she had one day to put $14,000 down to secure the sale. Her husband Mark was traveling and he didn\u2019t even know that she had looked at a property.<\/p>\n\n\n\n

Amelia\u2019s real estate investments are funded through personal accounts, in addition to being able to take out low interest loans from a family trust that was built at least two generations ago from her family\u2019s successful construction business. The trust was set up for three things: a down payment on a home, education or health-related expenses. Amelia had already used her trust to help with the purchase of the two-family home she lived in and rented to a tenant. The low-interest loan allowed her to more cheaply fund this investment property purchase. It also allowed her to be more competitive with an all-cash offer.<\/p>\n\n\n\n

\u201cThere were some exceptions for starting a business, but the funds were set up to help us be productive members of society and then for the rest to be passed on to future family,\u201d Amelia said. <\/p>\n\n\n\n

Amelia decided to move forward with the purchase as she believed it would help out her parents.<\/p>\n\n\n\n

\u201cMark wasn\u2019t too happy that I made this financial decision without him. It was definitely a sore spot,\u201d she said. Hopefully, Mark has forgiven her, especially with the results of the sale, which we\u2019ll get to later. <\/p>\n\n\n\n

Amelia closed on the property in July 2016, several months after she had originally made her bid.The bank contested the selling price after a valuation was performed. She wrote a letter back, refusing to pay more, arguing that she was the highest bidder after two full days of a bidding war and after more than 9,300 people had visited the listing on Zillow. The bank compared it to a house nearby that had sold for $420,000, which Amelia balked, describing the \u201ccomparable\u201d home as move-in ready with an additional bathroom, and updated kitchen and bathrooms. The bank agreed to close on the property for her proposal of $284,000.<\/p>\n\n\n\n

In that time, Amelia and Mark welcomed their first child into the world and started looking for contractor bids to renovate the property.  The economy was booming and Amelia said the cost was more than $100,000 more than what she was expecting. She and her husband decided to start doing some demolition work as they hoped the market would cool and they could firm up their plans.<\/p>\n\n\n\n

Six months later, construction began at Amelia\u2019s investment property. The $250,000 scope included:<\/p>\n\n\n\n