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, while some can make you lots of money.
This article guides you where to get the most profitable short sale deals.
Even though all short sales involve negotiating for a discount, some of them are a pure waste of time
You should target only the profitable short sale deals as a real estate investor.
1) Target motivated sellers directly
The best properties for real estate investing come from motivated sellers.
This must happen before a bank forecloses on the properties.
The mortgage payments must be at least 2 months behind for banks to consider 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 who have inherited properties, vacant houses, expired listings, etc.
These people mostly need to sell their properties, even though they have not put them on the open 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. Other states allow several months.
Make sure you have enough time to get the bank's attention before they have to foreclose on the property. It can take a long time just to get the bank's attention.
3) Target deals that have more than one mortgage
A lender for a second mortgage can lost all their investment in foreclosure. They are therefore more willing to negotiate than the holder of the first mortgage.
It is not unusual to get 80-90% discount on the second mortgage. If the first mortgage lender offers 10-20% discount on the first mortgage, you can make a clean profit on the deal.
4) Avoid short sales listed in the MLS
Real estate agents approach banks and list deals as short sales. Of course, the more they can fetch the better for them.
Real estate agents will not tell you the mortgage balance. And of course they will not tell you if there is one or two mortgages.
This means your offers will be blind. 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.
Sometimes you might a good deal from listed short sales, but mostly you will offer too much or too little. And of course you will waste too much time because most of your offers will be rejected anyway.
You are most likely to find the best short sale deals from motivated sellers.
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