Negotiating with mortgage lenders to accept less than the mortgage balance for a property can make you lots of money in real estate investing. Not all short sales are potentially profitable, while some can make you lots of money.
This article walks you through the best sources of profitable short sales.
Even though short sales involve negotiating with banks to get a discount on the mortgage, some short sale deals are a waste of your time.
As a real estate investor, you should aim for those deals that will make you more money.
1) Work directly with motivated sellers
The best source of houses for sale is buying houses directly from motivated sellers.
This must happen before a bank forecloses on the properties.
The mortgage payments must be at least 2 months behind for banks to consider a short sale.
People in trouble who own real estate are the best motivated sellers. These include people going through divorce, burned landlords, people with liens, people who have inherited properties, vacant houses, expired listings etc.
These people probably have properties they would like t sell, even though they are not listed on the market.
2) Make sure time is not limited
In some states such as Texas, you only get 3 weeks from the time a foreclosure notice is filed to the time foreclosure happens. Some states give you several months.
Ensure there is enough time before foreclosure happens. It can take a long time just to get the bank's attention.
3) Target deals that have more than one mortgage
A lender for a second mortgage can lost all their investment in foreclosure. They are therefore more willing to negotiate than the holder of the first mortgage.
A second mortgage lender can accept 80-90% discount on the mortgage. If the first mortgage lender offers 10-20% discount on the first mortgage, you can make a clean profit on the deal.
4) Avoid short sales listed in the MLS
Real estate agents approach banks and list deals as short sales. Of course, the more they can fetch the better for them.
Real estate agents will not tell you the mortgage balance. And of course they will not tell you if there is one or two mortgages.
This means your offers will be blind. You cannot make good offers as a real estate investor if you do not know the mortgage balance.
Even though you can get good deals from listed short sales, you are most likely to offer more than you normally would if you had the mortgage balance. And most of your offers will be rejected, wasting too much of your time.
Stick to motivated sellers and you will find short sales deals that will make you some good money.