Negotiating for a discount on the mortgage with a lender is called a shrot sale. The leander allows you to buy the property for less than the mortgage balance.
Of course, a home owner must be behind on their mortgage for the loan to qualify for a short sale.
As a real estate investor, you identify good candidates for short sale and you negotiate with the lender.
Here are importand factors to consider before doing short sales.
1) Qualify your properties properly
Not all properties qualify for a short sale. Your efforts are likely to be wasted if you try to do short sales on the wrong properties.
A home owner must be behind on their mortgage at least two months. You must consider the mortgage balance. A property with only one mortgage needs to be profitable if you get only 10-20% discount.
If there are two or more mortgages, negotiating all of them can produce a lot of profits. A second mortgage can be discounted by as much as 80% or more.
Properties with more than one mortgage are likely to be your best candidates for short sale.
Of course if repairs are needed, you must factor all the costs.
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 some good capital that will sustain you through months of not making a profit. . If not, then you should adopt short sales as a part time venture in your real estate investing business.
3) Be prepared for failure
Your short sale application can be rejected for any reason. They can reject it even when it looks good. 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 instance, lenders will not accept wholesale dels with “and or assigns”.
You must close as soon as your short sale is approved. Normally the bank will give you a number of days like 30 days to close.
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 from http://www.realestateinvestorswebsites.net