A short sale is the process of negotiating for a discount on the mortgage with a mortgage lender. In other words, the lender accepts less that is owed on the mortgage and lets you buy a property at a discount.
Of course, a home owner must be behind on their mortgage for the loan to qualify for a short sale.
You as the real estate investor identifies motivated sellers who qualify for a short sale and you negotiate with lenders.
These factors are important for the success of short sales.
1) Pre-screen your properties properly
Not all properties are short sale candidates. Your efforts are likely to be wasted if you try to do short sales on the wrong properties.
A mortgage must be at least two months behind to qualify for a short sale. You must consider the mortgage balance. If there is only one mortgage, then you need a discount as little as 10-20% for the deal to be profitable.
If there are two or more mortgages, then discounting all the mortgages can produce a lot of equity and profits. It is possible to get 80-90% discount or more on a second mortgage.
The best short sale properties are the ones with more than one mortgage.
Of course you must consider all the costs such as repairs.
2) Short sales take time
A short sale can take 3-6 months, sometimes more. If you are a new real estate investor, you must take into account this time factor before adopting short sales as a full-time business model.
You must have enough capital to take you through the long waiting periods.. Otherwise adopt short sales as a part-time model in your reale state investing business.
3) Be prepared for failure
A short sale can be rejected for no good reason. They can still say no even when it looks like an obvious candidate. Be prepared for rejection.
Having more than one short sale will help you. Expect a 60-70% success rate if your candidates are selected well.
4) Time is of the essence
You might not have enough time to stop foreclosure if a property is about to be foreclosed.. Select properties that allow you time to negotiate with a lender.
5) Have an acceptable exit strategy
A lender will not accept certain types of transactions for short sale deals. For example, you cannot wholesale the property with “and or assigns” in the contract.
You must be able to close after the short sale is approved. Most banks will give you about 30 days.
6) Enjoy some big profits
Some properties will produce big pay days for you. Once you have them well qualified, you can expect some good pay days for the ones that succeed.
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.
Tags: mortgage lender, real estate investing, real estate investor, real estate investor website, short sales