Is Short Sale A Viable Business Model In Real Estate Investing?

Negotiating with a mortgage lender to buy a house for less than is owed is called a short sale.  In other words, the lender accepts less that is owed on the mortgage and lets you buy a property at a discount.

  A home owner must be at least two payments behind to qualify for a short sale.

 You as the real estate investor identifies motivated sellers who qualify for a short sale and you negotiate with lenders.
 Here are importand factors to consider before doing short sales.

1)     Qualify your properties properly
Not all properties qualify for a short sale.   Selecting the wrong properties for short sale will be a waste of your time.

A home owner must be behind on their mortgage at least two months.   You must consider the mortgage balance.   A property with only one mortgage needs to be profitable if you get only 10-20% discount.

 If there are two or more mortgages, negotiating all of them can produce a lot of profits.  You can get as much as 80-90% discount on a second mortgage.

 The best short sale properties are the ones with more than one mortgage.

Of course if repairs are needed, you must factor all the costs.

2)     Be prepared to wait
A short sale can take 3-6 months, sometimes 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 some good capital that will sustain you through months of not making a profit. .  Otherwise adopt short sales as a part-time model in your reale state investing business.

3)    Be prepared for rejection
 Your short sale application can be rejected for any reason.   They can still say no even when it looks like an obvious candidate.  Be prepared for rejection.

Obviously, having several short sales at a time helps.    Expect a 60-70% success rate if your candidates are selected well.

4)    Time is of the essence
 You might not have enough time to stop foreclosure if a property is about to be foreclosed.. Select properties that allow you time to negotiate with a lender.

5)     Have an exit strategy that is acceptable
A lender will not accept certain types of transactions for short sale deals.   For instance, lenders will not accept wholesale dels with "and or assigns".

You must be able to close after the 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.  As long as you can qualify them properly it can be a source of big profits for you.

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