Purchasing a short sale home can be a lucrative investment
A lot of people make money by purchasing short sales, but they also know what they are doing and how to do it. There are some risks, but these can be minimized with some due diligence on your part.
A short sale is when a home is sold for less than what is owed on the mortgage. This means someone is going to lose money, at least on paper. The bank is going to try to minimize the loss.
The property may go to a competitive bid if more than one person is interested in the property. Because the bank is looking at this long term, a person with better credit and a better ability to pay off a loan could get the property with a lower bid than someone with lesser credit. Someone with cash could come in with yet a lower bid and get the property.
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GET DETAILS BEFORE PURCHASING A SHORT SALE HOME
A homeowner can’t just decide to short sale. He must get approval from the bank.
Purchasing a short sale home means looking at the mortgage paperwork. If the bank won’t agree, no short sale. Even if a real estate agent says a property is on a short sale list, you want to verify this with the company holding the loan.
Bankruptcy means a short sale can’t happen, unless ordered by the bankruptcy judge. Bankruptcy puts a halt to collection efforts on bills the homeowner has. Homeowners do not know that a bankruptcy stops a short sale.
Sometimes the bank won’t find out about the bankruptcy until after short sale proceedings are started. Make sure the homeowner hasn’t done this and does not plan to do so.
Some lenders require a homeowner to be in default on the mortgage. Some do not. Finding this out is part of the due diligence in purchasing a short sale home.
Purchasing a short sale home is made a lot more complicated by Second mortgages. Instead of one lender, there are two that have to be negotiated with. If one says no, the deal can’t go through. This doesn’t mean the sale can’t go through, but it’s likely to take a lot longer.
GET AN INSPECTION BEFORE PURCHASING A SHORT SALE HOME
Sometimes you’ll be allowed to inspect the property, sometimes not. Just because you do inspect it does not mean the house is going to be in the same shape when you take ownership. The homeowner may get mad and take frustrations out on the house in between your inspection and the closing.
What you can do is take pictures of the house and try to get the bank to guarantee the home is still in that condition at closing. You may also get to do an inspection after the family moves out and before closing. If you can’t inspect in person, hire someone to do it for you. A few dollars here can save a lot down the road.
Other things to look for that may not be as obvious are leaking roofs, termite damage, flood damage, age and functioning of major appliances. While replacing a stove is not a big deal, putting in a new HVAC can cost several thousand dollars.
Expect to do some work when purchasing a short sale home. If the homeowner is having problems meeting his mortgage, it’s likely some home maintenance has also slipped.
If repairs are needed, figure this into the total amount you are willing to spend.
HOW TO FIND SHORT SALES
Of everything involved in purchasing a short sale home, this is the easiest. You can advertise that you buy short sale properties in area media. Generally classified ads are cheapest. For a few dollars you can reach a lot of people.
You can also post similar ads on places like Craigslist. This is free and has a national reach, but you’re not going to reach quite as many people in a given area.
A very effective way to get involved in purchasing a short sale home is to contact real estate agencies and mortgage companies, lenders and banks in a given area. If you can greatly increase your chances of being contacted when these people have a short sale by proving you can buy short sale property.
You can make money from purchasing a short sale home, but you must do your due diligence.
When you’re purchasing a short sale home, look at the mortgage paperwork, and be aware that there could be second mortgages that may also require negotiation.
Make sure the homeowner has not filed bankruptcy, which would put a halt on the short sale.
Be sure to inspect the property and take pictures. Try to get the bank to guarantee the condition of the property at closing in case any damage occurs between the time of the inspection and the short sale.
If you’re interested in purchasing a short sale home, you can find one by advertising that you’re in the market for one. Placing classified ads in newspapers or on Craigslist and contacting realtors and lenders can help you find short sale homes.
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