Factors To Consider Before Doing A Short Sale

In a depressed real estate market filled with properties that are in foreclosure or heading to foreclosure, successful real estate investing must involve short sales, or negotiating with mortgage lenders to accept less than the mortgage balance to sell a property.
It is therefore important to know when a short sale is necessary to make the deal profitable.
These tips will help you identify when to do a short sale.

Why do a short sale?
Most lenders have too much inventory they cannot get rid of.
They have enough properties, they need to make loans. 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.
A motivated seller prefers to avoid foreclosure and possibly bankruptcy and walk away from the property.
Therefore both the seller and the bank stand to gain through a short sale.
1) Where to get short sale leads
A short sale is best done before the property goes into foreclosure. Depending on your state, from the time the foreclosure notice is filed in court, you could have as little as three weeks to several months before the property is foreclosed.
With most banks, allow 2 to 4 weeks to get their attention. If you make a good offer they can stop foreclosure.
If you get enough time in your state, then you can get leads from foreclosure notices files in the court house.
If you state does not give enough time, then regular motivated sellers may be your best bet. Then a short sale may be the way to go.
2) Which are the best deals for short sale?
Depending on your numbers, if you can make a reasonable offer to the bank that can get accepted (such as 80% to 90% of the mortgage balance), and this creates enough equity to make your number work, then you can do a short sale.

Deals with a second mortgage are excellent short sale candidates. A holder of a second mortgage may lose 100% of their investment in the event of foreclosure. They can therefore settle for as little as 10-20% of mortgage balance.

You can create lots of equity by negotiating both 1st and 2nd mortgage. Each loan is discounted separately, creating a lot of equity for you.

If the property has only one mortgage, make sure the balance is low enough to allow you to create equity with as little as 10-20% discount on the mortgage.

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

Simon Macharia is a real estate investor in Dallas, Texas. He has done a lot of short sales among other transactions. His business is run and automated by real estate investor website from http://www.realestateinvestorswebsites.net