Invest In Short Sale Homes To Diversify Your Portfolio And Manage Risk

Short sale homes provide excellent investment opportunities for those that like a challenge. But, you need to know what you are getting into before you go spending any money. Short sale houses are not easy investments that you can just plop your money into and call it a day. Find out all you need to know about investing in short sale homes to make it a lucrative experience for yourself below.

What Is A Short Sale?

A short sale is a deal in which an investor negotiates with homeowners and the mortgage lender to buy a property for less than is owed on the mortgage. Although the full loan amount is not repaid, the lenders or buyers, like, will still consider the mortgage paid in full. Short sales help lenders avoid having to repossess a home that is in foreclosure. Obviously, it helps the original home owners avoid foreclosure and the credit damages that come with themselves. This makes short sales beneficial for all involved parties.

Short Sale VS. Foreclosure

Foreclosed homes are different from short sale houses. Homes in foreclosure are put up for sale by the lender. Short sale properties, on the other hand, can be put up by the homeowner or by the mortgage lender. Typically, foreclosures offer a much easier and shorter buying process for investors. Short sales take longer to negotiate and complete, as the homeowners are usually still living in the house and the bank is in less of a rush to liquidate the property. This is important to consider when deciding whether to invest in foreclosures or short sales.

Finding Short Sale Homes

Typically, short sale properties are listed by real estate agents. You can find short sale listings on many real estate websites. However, it will not be a comprehensive list. Many sellers do not want to advertise their home as a short sale property. This tends to lead to buyers offering much less money. If you can, ask around with other short sale investors to find out how they learn of potential short sales. You can also partner with a real estate agent and get them to alert you to any short sales happening in your area. There are a number of ways to find out about pre-foreclosure homes available for short sale.

Take Time To Prepare

Before you buy a short sale home, take time to learn about the home’s appraised value. Then, you are better equipped to negotiate with the seller and the lender. This is a must for anyone investing in real estate. The key to earning a return when flipping short sale houses is to buy the house for a price that is below its worth. Otherwise, you will be facing an uphill climb. That is why doing your research on short sales is so crucial before you throw money at the seller.

Determining Profitability

Do the math to determine profitability before you invest in a short sale property. You can do this by adding up the numbers to make sure that the after repair value is greater than you costs. Your profit is equal to the home’s after repair value, or ARV, minus the purchase price, renovation, repair and carrying costs. Do this math before you consider any real estate investment, whether you invest in foreclosed homes or short sale houses. Then, you can be sure that you will not lose money, making your investment a much safer one than traditional stock market investments.

If you are an investor, plunging money into a real estate investment could be a wise way to diversify your portfolio and better manage risk. But, you need to know more about these short sale investments before you make a potentially costly mistake. Use this post as a guide for buying short sale homes. Short sale properties require a bit of work relative to other investment options. However, they can be a great way to guarantee returns. Make sure you do the required prep work, and your short sale investments could be some of your favorite holdings in your investment portfolio.

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