subject: Short Sales, Reos Or Motivated Sellers, Which Is More Profitable? [print this page] In a market full of mortgages going into default, a lot of real estate investors are never sure which way to go to get the best deals.
Do you get foreclosed REOs from the bank? Should you do short sales to get a discount on the mrotgage from the bank? Or do you stick to buying houses directly from motivated sellers?
These 3 scenarios are analyzed in this article.
Each method has its good and bad sides; let's look at each one:
1) Buying bank foreclosed REOs
Banks have a lot of foreclosed houses in their hands and they pile up more every day. As soon as they acquire them, they then try to sell them quickly.
There are few buyers, and these properties can sit on the market for a very long time and still get no buyers.
Banks can therefore offer great discounts, especially if they need to be fixed up.
As a real estate investor, shop carefully for good REO deals because not all them will meet your buying criteria or equity margin for you to make a profit.
2)Short Sales
Banks foreclose on homes when home owners are unable to pay. Before they foreclose, they are often willing to take less than the mortgage balance. This negotiation is called a short sale.
A bank will order an appraisal to get the true market value of the property. They will then discount the mortgage if the numbers look right.
A bank that holds a first mortgage is likely to offer very little discount on the mortgage, usually not more than 20% especially if it does not need major repairs.
A bank that holds a second mortgage can lose 100% of their investment in a foreclosure, so they are more willing to negotiate much lower. It is not unusual to get 80-90% discount on a second mortgage.
A property with a 1st and 2nd mortgage is therefore a lot better for a short sale.
Short sales can take 4-6 months. You therefore need cash and patience to go through the waiting periods.
Banks can reject your short sale application even when all numbers look good. You must therefore be ready for rejection.
Lastly as in REOs, you must close fast as soon as your short sale is approved. Banks will not accept creative financing on short sales.
When all is said and done, you can create a lot of equity and profits as long as you select the right deals, have patience to wait for a long time, can take rejection and you can close fast.
3)Motivated sellers
You can employ a wide variety of techniques to buy houses from motivated sellers.
This includes creative financing.
You also get the flexibility to negotiate easily if the mortgage balance allows. And you can be as flexible as you need when closing, e.g. you can wholesale a deal right from a motivated seller to a wholesale buyer.
As long as you can target people who need to sell their houses, this is the best way to buy investment properties.
