Negotiating with banks to buy properties for less than the mortgage balance can make you big profits in real estate investing. Not all short sales are potentially profitable, which some can make you lots of money.

This article walks you through the best sources of profitable short sales.

Even though short sales involve negotiating with banks to get a discount on the mortgage, some short sale deals are a waste of your time.

As a real estate investor, you should aim for those deals that will make you more money

1)      Target motivated sellers directly

The best source of houses for sale is buying houses directly from motivated sellers. This is before the property gets foreclosed.

The motivated seller must be at leat 2 months behind on their mortgage payments to qualify for a short sale.

You can target these motivated sellers by targeting people in legal trouble who own real estate. These include people going through divorce, burned landlords, people with liens, people whi have inherited properties, vacant houses, expired listings etc.

In other words, you target people who own properties they most likely want to sell, even though these properties may not be listed on the market.

2)      Make sure you have enough time

In some states like Texas, when a foreclosure is files by the lender, it is usually foreclosed within 3 weeks. In other states you may have several months before foreclosure happens.

Make sure you have enough time to get the bank’s attention before they have to foreclose on the property. It can take weeks to months just to get the bank’s attention.

3)      Target short sales with more than one mortgage

The holder of a second mortgage can lose 100% of their investment in foreclosure. They are therefore more willing to negotiate than the holder of the first mortgage.

This means you can get 80-90% discount on the second mortgage. If you also negotiate the first mortgage and get 10-20% discount on the first mortgage, you can make a clean profit from such short sale deals.

 4)      Avoid short sales listed in the MLS

Typically, real estate agents will approach banks and list properties as short sales. They are open to any offer they can get, of course the higher the better for them.

Usually no real estate agent will tell you the mortgage balance. And of course you will never know if there is one or two mortgages.

This means you can only make blind offers. As a real estate investor, it is in your best interest to get the mortgage balance before you can make any offer to buy a property.

Even though you can get good deals from listed short sales, you are most likely to offer more than you normally would if you had the mortgage balance. And of course you will waste too much time because most of your offers will be rejected anyway.

Stick to motivated sellers and you will find short sales deals that will make you some good money.

In order to be a successful real estate investor, you must attract motivated sellers, convince them to sell you their houses, make offers that are acceptable and close deals that make you money. Learn how you can achieve this with a  real estate investor web site for buying houses.

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? Do you do short sales to buy the houses for less than the mortgage balance? Or do you stick to buying houses directly from motivated sellers?

This article sheds some light into these 3 situations.

These 3 methods all have their pros and cons; let’s analyze each one:

1)      Buying foreclosed houses from banks – REOs

Banks have a lot of inventory in foreclosed homes and they seem to be piling them up every day. As soon as they foreclose on them, their next step is to put them back on the market to sell them.

There are few buyers, and these properties can sit on the market for a very long time and still get no buyers.

Banks are therefore willing to sell them less than their market value, even more so if they need repairs.

As a real estate investors, shop carefully for good REO deals because not all them will meet your buying criteria or equity argin for you to make a profit.

2)      Short Sales

If a home owner is behind on their mortgage, the bank eventually forecloses on those homes. Before they foreclose, they are often willing to take less than the mortgage balance. This negotiation is called a short sale.

Typically, a bank will do an appraisal to know the exact value of the home. Then they can give you a discount on the mortgage based on their numbers.

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.

It therefore makes a lot of sense to do a short sale on a property with more than one mortgage.

Short sales can also take a long time, usually 3 to 6 months. You must therefore have enough patience and capital to last you through such long waiting periods.

Banks can also turn down your request 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

There are so many ways to buy houses straight from a motivated seller depending on their situation. 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.

This is always the best way to buy investment houses as long as you can target people in need of selling their houses. 

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