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.