When A Short Sale Is Profitable In Real Estate Investing

In a depressed real estate market filled with properties that are in foreclosure or heading to foreclosure, successful real estate investing must involve short sales, or negotiating with mortgage lenders to accept less than the mortgage balance to sell a property. You should therefore know when to do a short sale to make the deal profitable. These tips will help you identify when to do a short sale. Why do a short sale? Lenders have more than enough properties that have fallen through that they are trying to sell. They have enough properties, they need to make loans. Each defaulted property in their inventory counts against how much they can lend. More properties in their inventory means they have less to lend and lower profits. A motivated seller prefers to avoid foreclosure and possibly bankruptcy 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 A short sale is best done before the property goes into foreclosure. Depending on your state, from the time the foreclosure notice is filed in court, you could have as little as three weeks to several months before the property is foreclosed. With most banks, allow 2 to 4 weeks to get their attention. If you make a good offer they can stop foreclosure. If you get enough time in your state, then you can get leads from foreclosure notices files in the court house. 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 a short sale may be the way to go. 2)  Which deals should you short sale? If your offer would be irresistible by the bank (such as 80% to 90% of mortgage balance) and still create enough equity to turn a good profit, a short sale may be the way to go. I like deals with a second mortgage. A holder of a second mortgage may lose 100% of their investment in the event of foreclosure. They are therefore more than willing to negotiate and can take as little as 10-20% of the mortgage balance. You can create lots of equity by negotiating both 1st and 2nd mortgage. This is because each loan will be discounted separately and you end up creating huge equity and profits for yourself. If there is only one mortgage, the mortgage balance must be low enough to give you a profit if they discount 10-20% of the mortgage balance. 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 real estate investor website from http://www.realestateinvestorswebsites.net