I'm sure you heard about the real estate bubble burst you can't escape it. It's everywhere the newspapers, T.V., radio and the internet. The number one question that is being asked by the aspiring real estate investor is "How do I make money as a real estate investor in a "down" market? The answer to this question is simple one by doing short sales.
What is a short sale?
A short sale is a sale of a mortgaged property where the lender accepts less than the balance of the loan. This happens when the loan is in default and the property is scheduled for foreclosure. Accepting a discount to sell right away can be cheaper than foreclosing.
Foreclosure is a costly process. In foreclosing on a property with a defaulted loan a lender incurs legal fees. If the property is sold as a foreclosure it will almost certainly be for a discount.
The chances are the property may not sell right away, in which case the lender will become responsible for the maintenance, property taxes, and insurance of the property, often for months, as well as incur a real estate commission if and when it sells. To a lender, therefore, selling a property before foreclosure, even at a discount, makes a lot of sense. Part of your job as a real estate investor is to convince them of this.
Profiting from short sales
The quickest way to use short sales to your advantage is by negotiating as low a price as possible to purchase the property from the lender and selling the property for as much as possible to an end buyer, sometimes wholesale but more commonly retail.
While it is possible in some circumstances to get the minimum 30% discount from ARV (after repair value) usually necessary for selling to an investor, often lenders will not allow more than a 10% to 20% discount, meaning that your end buyer will often be someone who wants to live in the property.
Short sales the ultimate goldmine
In 2007 there were 1 trillion dollars worth of adjustable rate mortgages scheduled to adjust. In 2008, another 1.8 trillion dollars will adjust. So there are and will be plenty of opportunities for the short sale investor to make a ton of money and at the same time help people out who can't afford their loans anymore.
Here is a typical short sale deal. A homeowner owes $95,000 on a $100,000 mortgage and is three months behind in their mortgage payment. The property is valued at $120,000. You make a short sale offer of $65,000 to the lender to pay off the loan. You've just created $55,000 in profit for yourself ($120,000 market value less $65,000 payoff equals $55,000 profit after short sale.)
In conclusion, it's easy to see that doing short sales is a great way to make money in a "down" market.
According to top industry leaders, short sale transactions drastically increased in the final quarter of 2007, expected to increase even more in 2008. Lenders have seemed to recognize that they are losing more money through the foreclosure process, then if they successfully negotiate a short sale.
Investors, Realtors and lenders should not assume that a short sale is a quick process, in most cases they take a considerable amount of time to put together. Short sales are negotiated, in most cases, with multiple lenders so there is nothing fast about them. Negotiating a short sale can take a considerable amount of time. In a short sale negotiation, everyone involved wants to be the "winner", so coming to terms with all parties involved can be an exhausting task.
Complications such as a second or third mortgage lien on the property will create a situation that will take time to workout; these lenders will have to agree to a short sale transaction too, not to mention the introduction of a home equity line against the property. The borrower may be four to six months in default on the first mortgage and the property may be worth then $100,000 or more of the original purchase price, however all lenders with liens against the property will have to agree on the terms of the short sale.
Most lenders in the second or third position will be willing to negotiate a short sale; in fact, it is there best interest, in a foreclosure these lien holders typically are wiped out. In the event of a short sale they may still in a position to get some of there investment back, it may only be 10-30 cents on the dollar, but better then nothing at all.
There is usually a lot that needs to work out in a short sale, excellent negotiation skills are required to get the best possible deal. Many unforeseen complications due show up once the negotiation process is started, you must be ready to deal with these as you are working with lenders on a short sale transaction.
There is an art to negotiate a short sale, but do not let this stop you, give it try. You may be the next lucky investor to pick up the "hottest deal in the market".
Both Omar Johnson & Thomas Bladecki are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Omar Johnson has sinced written about articles on various topics from tax, Real Estate and How to Sell on Ebay. Omar Johnson is a successful real estate investor and author of the home study course "Secrets Of Making Big Money In Real Estate With Little Cash And No Credit" For more info visit. Omar Johnson's top article generates over 12100 views. to your Favourites.
Thomas Bladecki has sinced written about articles on various topics from Pets, Finances and Foreclosure Help. Thomas Bladecki is the author and can provide additional information about foreclosures and the current real estate markets visit .. Thomas Bladecki's top article generates over 550000 views. to your Favourites.