When A Short Sale Is Profitable 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.

Knowing when to do a short sale is therefore important in putting big pay checks in your pocket.

These tips will help you identify when to do a short sale.



Why do a short sale?

Lenders are trying to get rid of properties in their inventory that they cannot sell.

They do not need 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.

In general, it takes 2 to 4 weeks to get the attention of the bank. 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 you state does not give enough time, then regular motivated sellers may be your best bet. Then you can do a short sale.

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.



I like deals with a second mortgage. A holder of a second mortgage may lose 100% of their investment in the event of foreclosure. They are therefore more than willing to negotiate and can take as little as 10-20% of the mortgage balance.



If you can negotiate both first and second mortgage, it is possible to create a lot of equity easily. 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