David Randolph: How to Find and Flip Short Sale Properties?

David Randolph comes from an engineering background. He belonged to the corporate world until he decided it was a wrong move all along. His story is inspirational for those looking to quit corporate America for a better future with financial freedom.

I was busy climbing the corporate ladder. I even got patents for the company. I was doing pretty well, and it was time for me to receive a raise. We went over all the details, and my boss was convinced that I had contributed greatly to the company’s success. But it turned out my raise was exactly zero dollars because I was already making as much as the president of the company. That came as a surprising shock. Shortly after that, I went to a 3-day seminar, and that’s where I first learned about real estate investing. I paid for my education.

What’s the Fundamental Skill for Real Estate Investors?

I first learned about rehabbing. If I knew “how to rehab,” then I could do rentals and wholesaling. As of today, I rehab 5–10 houses each year. My claim to fame is that all of my renovated houses have sold within 7 days or less. There is a reason for that, which I will disclose later in this interview. Each renovation project delivers $50K–$150K gross profit. And most of these deals are “short sale” properties.

Why Should You Pursue Short Sales in Today’s Market?

What’s a short sale in your opinion?

It’s not what most investors think. It’s not the definition that appears on a single Google search. From experience, I can tell you that a short sale doesn’t happen when the house is underwater. You can have an underwater house, and the bank won’t negotiate a short sale with you.

A short sale happens only once the homeowner has missed one or more mortgage payments. There is a study done by Black Knight. It’s a mortgage data statistical company recently acquired by another company called ‘ICE.’ The study highlights data from all foreclosures in America over the last 30 years.

Here is what the study says:

After studying a sample of all pre-foreclosure properties in America where owners had at least 40% equity, it was surprising that one-third of those homes went into foreclosure anyway.

Read those words again. Many homeowners are not aware of their options. They had equity in the house. It was possibly easy to sell the house, but they went into foreclosure. Real estate investors can help those people by providing education and creative options.

What’s Your Strategy About Teaching Students About Short Sales?

Apart from being an investor, I am also an active hard money lender. I have $3.5 million sitting in my IRAs. I lend this money to others since I am not retired yet. I give money for purchase, rehab, points, and the money for monthly interest payments. My students can spend zero money and pay it all back on the HUD statement.

One of my students bought his very first short sale for $57,000, put $10K worth of dumpsters in it, cleaned the property, and listed it on the MLS. He went under contract for $225,000 cash, without appraisal and inspection contingencies. His highest offer was $245,000, but he was smart enough to accept the cash offer without contingencies.

How Do You Find Distressed or Motivated Seller Leads?

You can’t find distressed leads on the MLS. These deals are hidden, and you have to find them through your own lead generation efforts. Establish a marketing budget and have the leads coming to you via a sales funnel. Your marketing tools can be MotivatedSellers.com, SEO, or bandit signs, but there has to be a lead before you can make money.

As real estate investors, we are the buyers and the negotiators. I am the only one who cares about making $150,000. It doesn’t work the same way with a flat-fee company that does short sales.

Talk to the homeowners. You can purchase a property via short sale if the homeowner authorizes you to negotiate directly with the bank.

How Do You Determine the Value of a Short Sale Property?

You have to be really good at understanding the market value of a property. In a short sale, you have different loan types (around 7 or 8). You need to understand the loan structure so you can pursue the right type of leads.

For example, on an FHA loan, the bank will approve 88% of the appraised value. Don’t offer any higher than that.

One of my students was trying to buy a distressed asset. It was financed via a Fannie Mae loan. The bank asked for $228,000. My student immediately wanted to buy the house because he could renovate it for $15K and sell the house for $320,000.

However, we have a rule not to accept what the bank asks for. He disputed the price and ended up acquiring that property for $164,000, invested $15K in it, and sold it for $305,000.

What’ll You Do If You Were Starting Over Today with Your Current Knowledge?

David, you have years of experience in the real estate market, but this is a question for newbie investors. If you were starting over today (with no resources or money) but with your current knowledge, what would be your investment strategy?

Relationships are the #1 tool for successful investment projects. Go and attend your local real estate meetup. You’re going to need a plumber, attorney, realtor, and electrician at some stage. It’s best to start building those relationships today so you can reap the benefits later.

The second thing is to invest in education. There is no point in reinventing the wheel. People have become successful investors without prior knowledge and without money. Find a mentor or coach and learn the blueprint.

Your Favorite Quote or Book

One line is coming to my mind: “The one with gold makes the rules.” Cash is the king in real estate. When you have the money, you can determine the rules.

What’s Next for You Speaking Personally or Professionally?

I have a personal goal of making 1,000 millionaires across the country. I want people to choose financial freedom and have the luxury of choice. You can outsource and hire different aspects of the short sale. People can buy leads from motivatedsellers.com. They can outsource cold-calling and they can learn the art of negotiation. All they need is a willingness to learn and re-learn along the path.

Connect with David now and join his workshop - https://thedavidrandolph.com/