Short Sale Basics for All Real Estate Investors

Short Sale Basics for All Real Estate Investors

Short Sale Basics for All Real Estate Investors: In the mortgage industry, the term ‘short sale’ refers to the process of a bank holding a mortgage to accept less than the seller owes on that mortgage in exchange for the deed on the property. For example, John Smith owes $100,000 on his mortgage and is unable to make the regular monthly mortgage payments and it goes into foreclosure. If you are interested in the property, you can sometimes negotiate with the bank to accept $70,000 -80,000 on the mortgage, rather than have the bank take over the property through the foreclosure process.

In the scenario above the bank wins because they are able to dump the property before they own it and have to deal with selling it. In addition, you as the investor win if you can then turn around and sell that property for its fair market value to someone else.

Short Sale Basics for All Real Estate Investors
Short Sale Basics for All Real Estate Investors

In the above scenario, even if the market value of the property is $100,000, and John Smith had no equity in the property, if you can discount the mortgage down lower with the bank, and then sell the property to someone else for market value, you have essentially created $20,000 – $30,000 in equity. This created equity is then your profit on the transaction.

Mortgage foreclosure issues are rampant in the news these days. And, because of the large number of foreclosures, banks are more willing than ever to negotiate short sales if they mean that they can get out of a property without losing too much money. After all, banks are in the business of money not holding and selling properties. As a real estate investor, you can use this fact to your advantage.

For real estate investors, especially those interested in wholesaling properties to other investors, working short sales and thus creating equity can be quiet lucrative. The key to getting your short sale approved by the bank is in showing the bank why they don’t want the property and how you can make them a good deal to take it off of their hands.

Short Sale Real Investing

If you want to be a competitive vendor in the market of real estate, you must know the technique of short sales. The main advantage of this technique is to allow the discount to real estate investors from the lender.

What are short sales in real estate investing?

A short sale process comes in the picture when the lender accepts a discount on a mortgage in order to avoid a possible bankruptcy or foreclosure auction. In this method, instead of buying the property from a seller itself, you have to purchase the corresponding property from the lender. As an advantage, you will get a handsome discount on that property. For instance, suppose a homeowner facing foreclosure, has an existing mortgage of $400,000. Then you offer to the lender directly for $300,000, which may be accepted as a full payment loan.

The question arises here that why they are willing to accept this kind of deal and give discounts? Well, there are two main reasons behind this deal. First reason, banks do not want bad loans to be written on their books or record because bad record hinders the growth of the banks. Therefore, whenever banks get the opportunity to sell the property without any huge loss, they will sell it.

Short Sale Real Investing
Short Sale Real Investing

A second reason, lenders know that if the property goes to auction, they will pay heavy loss because if the property goes for auction, there are so many fees involved in it. Thus, they would give a discount and finished it. It is the best time to jump in the short sale process of real estate and invest in it since the foreclosures are increasing rapidly.

Lenders’ willing to give a discount

Almost every lender offers a discount. The market is inundating with lenders, who are willing to give discounts. It might be a possibility that you find a lender who does not provide any discount but it is rare. Only two or three lenders in many may not offer any loan or provide a small discount.

What kind of property is best for investing in short sales?

According to shrewd investors in a short sale investing system, the best property for investing is the houses that require a lot of repair and renovation because, on these kinds of properties, the lender will give you a huge amount of discount to investors. Properties that are leveraged are also very good for investing. Most experienced investors are willing to invest in over-leveraged properties.
Properties having large amount of second mortgages are also recommended as gold because the second mortgage can be eradicated at the foreclosure auction.

Important step while dealing in a short sale

There are many steps required to take while dealing with short sales. But the most vital step is to get the deed of the property. Most of the investors forget this essential step while investing in the short sale. It might be the case when, homeowners change their minds, and want to back out from the deal as they scared or in another case, they want to do negotiation again. If you have property deed then you could easily escape from the trap, otherwise, you might get in trouble by bearing heavy losses.

How Does A Short Sale Work For The Buyer?

short sale is a real estate transaction where the owner’s lender agrees to accept a purchase offer from a new buyershort of what is owed by the original owner. This could be great for you, the buyer, but it could take a long time to move into your home.

How Do Investors Make Money On Short Sales?

One way to make money on stocks for which the price is falling is called short selling (or going short). Short selling is a fairly simple concept: an investor borrows a stock, sells the stock, and then buys the stock back to return it to the lender. Short sellers are betting that the stock they sell will drop in price.

Are Short Sales Good Investments?

Good luck. Short sales are an opportunity to buy property at less than what the current owner owes on the loan. All this being said, yes, usually a short sale is a good investment. The next topic would be about the time involved in a short sale, especially not knowing if it will be accepted by the bank.

How Do You Find Short Sales On Real Estate?

How to Find a Short Sale
  1. Contact local real estate offices and get on a list of people interested in short sales.
  2. Check MLS listings on real estate websites.
  3. Search courthouse filings for “pre-foreclosures” in the area.
  4. Select those pre-foreclosure properties that interest you based on their location and other factors.