Short sale investors fail for one of two reasons: either they do not know what they are doing, or they simply don’t look for the right opportunities. The most common short sale transaction is the one where you buy a property that has high equity and is over-financed, because these are the most common foreclosures. However, this is probably the worst possible type of short sale to get involved in, especially since there are so many that require little to no upfront investment. Here are some things to know about short sales.
When you get involved in a short sale, you’ll call the bank and ask them about the paperwork that you need. If you don’t sound like you know what you’re doing, they probably aren’t going to be helpful. What’s worse is that if you invest the time to fill out the paperwork and still appear clueless, they probably won’t respond. The trick is that you have to at least be able to pretend like you know what you’re doing when you call them. Learn the lingo and figure out a little about how to short sale before you get started, and you’ll get a much quicker and better response.
What is a short sale? A short sale is basically discounting the loan to something less than what the seller owes. When it comes to figuring out how to short sale in an effective manner, you need to find properties that are either under-financed or those that have second mortgages in default that you can buy for a discount. When you do this, you can often get a $160,000 home for dirt cheap (imagine $5,000 to $10,000), and make profit on the second mortgage. For example, if that mortgage was for $45,000, and you buy it for $10,000, you’ll make $35,000 once the home sells, is refinanced, or has the first mortgage modified.
The most effective way to short sale is to avoid the seller completely. Go right to the bank or the lien holder and buy the mortgage or second mortgage at a discount and don’t even bother with the seller. So many foreclosure seekers give up because they can’t find sellers for the properties that they want. You now know that you don’t need them, which gives you many more deals and opportunities than you had before. If you’re able to learn quickly and at least pretend like you know what you’re doing, short sales can be a profitable investment for you.
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