Is Short Sale A Viable Business Model In Real Estate Investing?
Negotiating a short sale for a discount on the mortgage with lenders can be quite profitable. However a lot of real estate investors give up on it either because they don't know how togo about it, or they just get frustrated with the process.
Is a short sale worth your time? Negotiating with a mortgage lender to buy a house for less than is owed is called a short sale. The leander allows you to buy the property for less than the mortgage balance.
A loan qualifies for a short sale is the home owner is at least two payments behind.
You as the real estate investor identifies motivated sellers who qualify for a short sale and you negotiate with lenders.
These factors are important for the success of short sales.
1) Qualify your properties properly
All properties are not short sale candidates. Trying to negotiate for the wrong properties can be a big waste of time.
A home owner must be behind on their mortgage at least two months. The mortgage balance is an important factor to consider. If a property with only one mortgage becomes profitable with only 10-20% discount, it is a good short sale candidate.
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.
The best short sale properties are the ones with more than one mortgage.
Of course you must consider all the costs such as repairs.
2) Be prepared to wait
A short sale takes 3-6 months or 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 enough capital to take you through the long waiting periods.. If not, then you should adopt short sales as a part time venture in your real estate investing business.
3) Be prepared for rejection
A short sale can be rejected for no good reason. Even when the deal looks obvious, they can still say no. Be prepared for rejection.
Having more than one short sale will help you. If you have selected your short sale candidates well, expect a 60-70% success rate.
4) Time is of the essence
You might not have enough time to stop foreclosure if a property is about to be foreclosed.. Choose properties that will allow you time to negotiate.
5) Have an acceptable exit strategy
A lender will not accept certain types of transactions for short sale deals. For example, you cannot wholesale the property with "and or assigns" in the contract.
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) Be prepared for big pay days
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.
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