Real estate investors looking for steady, relatively safe returns, and who are also interested in helping financially-squeezed homeowners remain in their properties, should check out the "seamless short sale" concept.

It's the brainchild of a Coldwell Banker associate broker based in San Diego, Al Hackman, along with short-sale specialist Troy Huerta, broker and owner of Real Estate Insight in San Diego.

Here's how the idea works. Rather than homeowners being forced to leave their houses after a short sale to an investor, they instead rent back the property on a triple-net basis for less than they were paying per month to the bank.

They may even negotiate a contractual right of first refusal to repurchase their property -- at a pre-set price -- two or three years down the road.

That way the home owners stay in the house they really never wanted to leave, and investors get thoroughly-vetted tenants who'll take care of the rental property as if it's their own.

Investors typically can look to annual internal rates of return of 7 to 8 percent, plus a gain on the eventual resale.

Take this real-life example provided by Hackman. Owners in north San Diego county bought a house in 2005 for $725,000 with 20 percent down. They remodeled the property with their own funds, then took out an equity line of $72,500 in 2006.

The owners' current debt on the house totals $652,000 but the property only appraises around $500,000, so they're underwater by $152,000. They'd like to do a short sale, but they'd also strongly prefer staying in the house.

The solution: Following negotiations with the primary and secondary lenders, they sell the house for $500,000 to one of Hackman's investors, then lease it back for $25,000 a year, triple net, which means they pay for taxes, insurance, utilities, and they get the right to buy the house from the investor in three years for $550,000.

The investor gets a 5 percent cash-on-cash return from the lease, plus if the owners repurchase at $550,000, Hackman calculates the internal rate of return over the three years at 8.1 percent.

"That's an excellent return for a low-risk investment," said Hackman in an interview with Realty Times.

The key to the whole transaction is to move the short sale process forward much quicker than usual, which is where Troy Huerta comes in. He's negotiated hundreds of short sales with banks and second lien holders in recent years, and knows how to make it happen.

Hackman, meanwhile, would like to see Coldwell Banker take the "seamless short sale" concept nationwide.

Published: July 17, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.