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.
This article walks you through when you should consider doing 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.
The more properties they have, the less they can lend, and the less profits they stand to gain.
On the other hand, a motivated seller would be better off avoiding foreclosure and bankruptcy by doing a short sale 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
The best time to do a short sale is before a property goes into foreclosure. Different states allow different time periods from the time a foreclosure notice is filed in court to foreclosure itself, typically 3 weeks to several months.
With most banks, allow 2 to 4 weeks to get their attention. If you make a good offer they can stop foreclosure.
If your state allows enough time, then foreclosure notices files in the court house may be a good source of leads.
If your state does not give enough time for this, then you are better off pursuing regular motivated sellers who may turn out to be behind on their mortgage payments. Then you can do a short sale.
2) Which deals should you 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.
Deals with a second mortgage are excellent short sale candidates. A holder of a second mortgage can lose all their investment in foreclosure. They can therefore negotiate as little as 10-20% of 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
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