Short Sales Offer Sound Investment Opportunities

According to recently reported GDP figures, the recession appears to be mostly over

. Stocks are about 50 percent higher than the bottom reached in March 2009 and gold and silver are way up, as well. So where can investors hungry for cheap investment opportunities turn to? Housing, especially foreclosures, might be a good place to look for investment opportunities. In the majority of the nation, the real estate market is still struggling. July marked the 17th month in a rwo in which foreclosures exceeded 300,000. Housing is a very local-specific market and different areas typically hit bottom at different times. But now that time is here for a lot of different regions.

There are a handful of reasons the housing market can provide some nice investment opportunities right now, especially for those with dispensable capital that can afford to sit on properties. Lenders are growing increasingly desperate to unload growing portfolios of properties acquired through foreclosing on bad loans, providing investors with nice leverage in negotiations. Since most people are unfamiliar with or unwilling to go through the long process of acquiring distressed properties, the competition in the market is relatively light. Pre-foreclosures, short sale offers, and post-foreclosure real estate owned (REO) offers take a substantial greater amount of work, compared to a traditional sale. Thus many realtors prefer to steer clients in the direction of a traditional home purchase.

Interest rates, currently at or near record-lows, will certainly rise again at some point. And for investors, low interest rates plus nice leverage over sellers is like having somebody give you money. The current average for a 30 year fixed-rate mortgage is 4.5 percent, which is the lowest average for the mortgage type in 39 years. All these factors hint that a true bottom for housing may be near. Now is definitely a good time to start submitting low bids on distressed properties, and the competition should get even scarcer moving forward as cold weather and the start of school drive even more buyers out of the market.

There are always risks in investing, of course, and not every cheap home makes a good investment. Short sales are typically the highest reward type of distressed property acquisition, though they require substantial patience through the process dealing with lenders' pre-foreclosure departments. Before the property is foreclosed on, you make an offer to purchase the home for less than the mortgage value. Most homeowners are open to a short sale because it represents a lesser credit hit, and with foreclosure looming, they are on the verge of losing the home anyway. If a homeowner is hesitant to accept an offer, an offer to cover moving expenses or buy appliances in the home can change their minds.

When attempting to acquire a property through short sale, begin by researching the original sales price paid by the current owner. Lenders with bloated real estate portfolios will typically accept an offer of 80 percent of the original sales price without question. Be careful, though, as some owners may have paid top dollar during the housing peak and took out a 100 percent loan. You may have to drop your offer to as low as 20 percent to get a good deal in cases like these. Either way, always start with an offer much lower than what you'd be willing to pay and let the lender counter-offer.

Short Sales Offer Sound Investment Opportunities

By: G Mills

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