Short Sale Investing
The Advantages Of Short Sale Investing
There are many ways to profit from the current real estate, but short sale investing stands out above the rest for a number of reasons.
For those of you unfamiliar with the short sale investing process let’s take a quick look at how it works.
Typically a short sale occurs after a home owner falls behind on their mortgage payments and are unable to get caught up. They are not able to sell their home because the seller typically owes more on the house than the home is worth.
So many homeowners found themselves buying at the peak of the recent housing boom with incredibly high amounts of financing. This has left many deep underwater on their home loans and unable to sell on conventional terms.
The mortgage lender is willing to take a discount off the full mortgage payoff in order to sell the home. Banks do not want to own homes. They make their money from the interest on the mortgage.
So why would a mortgage lender take a discount?
Lenders are in the lending business. They are not in the real estate business. When a house forecloses and a bank takes owner ship it is called “Real Estate Owned” or an “REO.”
Banks see REO’s on their balance sheet as a liability and NOT an asset. In order for a bank to pass their regulatory audits it’s important for them to have a positive asset to liability rate.
If banks show too many REO’s on their balance sheets they could lose the ability to get the loans they need to stay in business. In fact, for every month a REO sits on their books unsold the bank loses money.
Banks also answer to their board of directors and stock holders. Nether the board of directors or stock holders want to see REO’s on a banks balance sheet.
In some cases the REO manager of a bank has been fired because they have too many REO’s on their books.
This s a power barging chip when negotiating short sale deals with mortgage lenders.
So why would a home owner go with a short sale?
They want a fresh start and getting out from under a hefty mortgage payment will give them peace of mind.
In some cases short sales are more favorable on a persons credit than a foreclosure.
They are left without any other options. Sometimes there is just no way to save their home.
Why is short sale investing a good business to get into?
- You get to help out a lender and a home owner out of a tough financial situation. ( And you get to make a nice profit while being the good Samaritan)
- There is very little risk in this type of real estate investing.
- You do not need any of your own credit to get started.
- There is no down payment required. So no cash out of your pocket.
- No mortgage payments to make. No sleepless nights worrying about your rental property with no tenants in sight.
- Low competition. There is a huge inventory of homes in foreclosure and not enough investors to goggle them all up.
- Huge profit margins.
- You can do it full time or part time.
- Most profitable short sale market place is found in residential real estate.
- You can work with Luxury home short sales. These short sale deals require the same amount of work as small deals but the profit margins are much higher. ( Properties over $ 1 Million)
- You can work real estate short sales in all markets. Big cities, suburbs and rural areas.
- You don’t need a ton of money to get started. Just a solid short sale investing education and the drive to become successful.
So let’s look at a typical short sale investing example below:
A homeowner who purchased a $600,000 home in 2005 with 100% financing who now finds that their home is worth only $300,000. This type of situation is prime for short sale investing. There is no way they are going to be able to sell the home for as much as they owe on it. If as with so many others, it is quite likely that the homeowner has also seen a sizable drop in their income in the last few years and is not only struggling to maintain payments if they have been at all, but is sickened by seeing neighboring homes sell for half of what they owe.
For short sale investing pros, this is an attractive scenario. The bank certainly doesn’t want to have to go through the foreclosure process. So with the help of a short sale professional you could find that you could easily pick this home up at $300,000, and in many cases much less. If you could acquire this home for anywhere between $200,000 to $280,000 there is clearly a nice profit margin to be had from short sale investing. Once you get close the short sale you sell it to an end buyer.
Let’s say you get the house for $300,000 and you sell it for $400,000 to your end buyer. You’ve just made about $100,000 in profit.
This is called the “spread: This is the difference between the short sale approval and what it sells for. And the good news is, the spread is much bigger on Luxury and high end homes.
Though why choose short sale investing instead of picking up foreclosures at auction or after they have become bank owned?
Short sale investing often means being able to acquire homes in much better condition. Other types of foreclosures have often been left abandoned and have been vandalized or have even been stripped by homeowners angry at being thrown out of their houses.
Short sale investing also provides a much safer way to invest when it comes to title. The dangers of buying REO’s and auction properties and having to defend your ownerships rights later or not being able to sell them has been clearly highlighted in the news and can mean big loses.
You will also often find the biggest discounts from short sale investing compared to other types of real estate investing. Why? Because they can be acquired before years of back interest, late fees and attorney’s fees have been added to the price.
Plus once a bank takes over the property they have to cover holding costs which adds more and more to the amount they have invested. In contrast short sale investing can mean that you can see these savings in your pocket instead.
It is true that short sale investing can mean taking longer to acquire properties. Exactly how long it takes to close depends on the individual deal, but it can take several months.
However this is actually a very good thing for those in short sale investing providing they have a steady flow of deals working.
This extra time means more time to obtain the best financing and even to market the property and find a resale buyer before you even close on the property. This means instant profits from short sale investing!
Still, while it can be incredibly profitable you should absolutely seek out an experienced professional to help you to negotiate your short sale investing deals.
Banks and mortgage lenders are very particular about how they like paperwork submitted and getting it right can not only mean the difference in getting the deal but even tens or hundreds of thousands in short sale investing profits.
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