If you’re a real estate investor, you’ve probably heard of short sales. This type of investment property can be an excellent opportunity for investors looking for a good deal on a home. However, there are also some drawbacks to consider before getting started.
In this blog post, we’ll discuss what a short sale is and why investors might want to consider buying one. We’ll also cover the basics of how to get started with this type of investment!
What Is a Short Sale?
Real estate investors often look for short sales to find properties they can purchase at a discount. Short sales happen when someone needs to sell their home quickly. Often this occurs when a property owner is facing foreclosure. But there are numerous other reasons a property owner might need to make a short sale on their home. Let’s look at a few of those reasons.
Foreclosure
One of the most common reasons a property owner may want to sell their home quickly is that they can’t make their mortgage payments, and the bank will foreclose on the house. The owner then sells the property for less than what is owed on the mortgage to avoid foreclosure.
However, there are some things to consider before investing in this type of short sale. One is that the process can be lengthy and complicated if the property owner is already going through foreclosure. These types of short sales can often take months to complete, so investors need to be patient.
Another thing to remember is that the property may need some repairs. This is because the owner may have neglected the home during foreclosure. Investors should inspect the property thoroughly and get an estimate of the repairs that will need to be made before making an offer.
The Property Is in Distress
Another reason a property owner may want to make a short sale is because the property is in distress. This could be due to many different things. The property might be in a high-crime area or need extensive repairs after being lived in for an extended period.
If the property is in distress, then the owner may not be able to sell it through traditional means. They may need to make a short sale to get rid of it quickly. Investors should inspect the property carefully before making an offer on a distressed short sale.
The Owner Needs to Sell Quickly
There are other reasons an owner might need to sell their home quickly besides foreclosure or distress. For example, they may have to relocate for work, or they might be going through a divorce.
These types of short sales can often be a good opportunity for investors because the owner may be more motivated to sell quickly and be willing to accept a lower offer.
Investors should still inspect the property and ensure they’re comfortable with the repairs they’ll need before making an offer. They should also try to find out why the owner needs to sell quickly to gauge their motivation to sell at a discount.
The Property Is in Probate
Another reason a property might be up for sale is that the owner has passed away, and the property is in probate. This means that the court is overseeing the sale of the property.
Probate sales can often be a good opportunity for investors because they can get a great deal on the property. However, there are some things to consider before investing in this type of short sale. One is that the process can be lengthy and complicated. The other is that there may be multiple heirs who need to agree to the sale, which can make it challenging to get everyone on board with selling at a discount.
Investors should consult an experienced real estate attorney before starting this type of short sale. They will be able to advise investors on the best way to proceed and help them navigate the process.
Are Short Sales Right for Every Investor?
As you can see, there are several reasons a property owner might need to make a short sale. And while there are several things to consider before investing in this type of property, there can also be some great opportunities for real estate investors who are willing to do their homework.
Not every investor will want to buy a short sale property. As we mentioned before, the process can be lengthy and complicated, especially when a bank is involved. This can be frustrating for investors who want to buy a property quickly.
Another thing to consider is that the property may need some repairs. This can be costly for investors, especially if they’re unfamiliar with the repair process. Underestimated repairs can eat into an investor’s profit or cause them to lose money on the deal.
Finally, it’s important to remember that the bank may not approve the short sale in the case of a foreclosure. If this happens, the investor will have to find another property to purchase.
How To Get Started with Short Sales?
If you’re an investor who’s interested in purchasing a short-sale property, there are a few things you need to do first.
Arrange Financing
First, you’ll need to get your financing in order. This means getting pre-approved for a mortgage or finding a private lender willing to finance the purchase.
Wholesaling the deal is another option for investors. This is where the investor works to close the short sale with the seller and finds a buyer who wants to purchase the property for more money.
Find Distressed Homeowners and Market to Them
Of course, you’ll need to find a property to purchase first. You can do this by searching for short-sale listings online, utilizing a list provider that specializes in finding short-sale listings or contacting a real estate agent specializing in this type of property.
You’ll also need to market to these distressed homeowners so that they know who you are and your intent to sell.
Direct mail marketing is a great way to get in front of potentially distressed sellers regularly. Of course, you’ll want to utilize a trusted company that specializes in helping real estate investors find off-market deals.
Do Your Homework on The Property?
Once you’ve found a property that you want to buy, it’s important to do your homework. This includes inspecting the property, estimating how much repairs will cost, and checking comps. This is important because it will help you decide whether you want to buy the property or not. You’ll also need to do a title search to check for liens and encumbrances.
Make An Offer to The Seller
Once you’ve done your homework, it’s time to make an offer to the seller. When making your offer on a property that’s in foreclosure, be sure to include a contingency that states the sale is contingent on bank approval of the short sale. This will protect you if the bank doesn’t approve the deal.
Get The Bank’s Approval
If the seller accepts your offer, you’ll need to get the bank’s approval of the short sale. As we mentioned before, this can be a lengthy and complicated process. However, working with an experienced real estate attorney can help make it go more smoothly.
Close On the Property
Once the bank approves the short sale or the seller accepts your all-cash offer, you’ll be able to close on the property. At this point, it’s important to have a real estate attorney review all the paperwork to make sure everything is in order.
After closing, you can fix the property and rent it out or sell it for a profit. You can also invest in upgrading the home to increase your profit margin.
Final Thoughts
Short sales can be an excellent opportunity for investors, but it’s essential to do your research before you jump into this type of investment. By keeping these things in mind, investors can make sure they’re getting a good deal on the property and avoid any surprises down the road.
