When Short Sale Is Important In Real Estate Investing

In the current real estate market where properties are getting in default

, negotiating with banks to accept less than the mortgage payment is necessary for business success.

You should therefore know when to do a short sale to make the deal profitable.

This article walks you through when you should consider doing a short sale.

Why do a short sale?

Lenders have more than enough properties that have fallen through that they are trying to sell.

They need to make loans, not acquire more properties. Each defaulted property in their inventory counts against how much they can lend.

More properties in their inventory means they have less to lend and lower profits.

On the other hand, a motivated seller would be better off avoiding foreclosure and bankruptcy by doing a short sale and walk away from the property.

Both the bank and motivated seller therefore prefer a short sale.

1)Where to get short sale leads

A short sale is best done before the property goes into foreclosure. Different states allow different time periods from the time a foreclosure notice is filed in court to foreclosure itself, typically 3 weeks to several months.

With most banks, allow 2 to 4 weeks to get their attention. They can stop foreclosure if your offer looks good.

If your state gives enough time from foreclosure notice to foreclosure, then you can get a lot of leads from foreclosure notices.

If your state does not give enough time for this, then you are better off pursuing regular motivated sellers who may turn out to be behind on their mortgage payments. Then a short sale may be the way to go.

2) Which are the best deals for short sale?

If you can make an offer the bank cannot refuse (such as 80% to 90% of mortgage balance) to create enough equity to make a good profit, a short sale may be the way to go.

Deals with a second mortgage are very attractive. A holder of a second mortgage can lose all their investment in foreclosure. They can therefore settle for as little as 10-20% of mortgage balance.

If you can negotiate both first and second mortgage, it is possible to create a lot of equity easily. This is because each loan will be discounted separately and you end up creating huge equity and profits for yourself.

If there is only one mortgage, the mortgage balance must be low enough to give you a profit if they discount 10-20% of the mortgage balance.

Of course lenders can discount more than this but I like to have a safety net before I can spend time on the deal.

by: Simon Machcria

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