In short, short selling is a good idea if you have plenty of time and money. A short-selling buyer can get the property at a reduced price, but the property (in all likelihood) has its share of problems, think about “fixing” and the deal must go through considerable red tape to make it a reality. Buying a short sale can be a great opportunity to get a property at a reduced price, but it can also have its drawbacks. Buying a short sale is a more complicated process than selling a typical home, so there are some unique risks when investing in these types of investment properties.
Learn the seven risks of a short sale so you can plan properly and decide if it might be the right investment for you. A small short sales margin might pay off for buyers, but it's usually better to buy a home that isn't in default. Any real estate professional who has been set on fire by a failed short sale in the past is likely to take their new buyers elsewhere. However, a short sale can prevent foreclosure and its negative impact on your credit.
A short sale is less harmful than a foreclosure, as long as the landlord can persuade the lender to report the debt to the credit bureaus as “fully paid”. A short sale is much preferable from a personal credit rating standpoint, especially when compared to any potential foreclosure. Credit rating firms have a grim view of foreclosure and will issue a much lower credit score than when a home seller resorts to short selling. Not only does this protect the seller's score, but it also keeps them in the game and they are in a better position to buy another home in the future, without the burden of a significant credit score decline induced by foreclosure.
Short selling can be beneficial to all parties involved. They offer greater investment opportunities for buyers and minimize the financial repercussions that both lenders and sellers would face if properties went into foreclosure. A short sale transaction occurs when mortgage lenders allow the borrower to sell the home for less than the amount owed on the mortgage. A short sale is when a homeowner sells their property for less than the amount owed on their mortgage.
Alternatively, you can search for pre-foreclosure foreclosures using a database such as RealtyTrac, which allows you to focus your search on pre-foreclosure foreclosures that haven't yet been released for sale. Next, I'll talk about buying short sale homes from an investor's perspective, as many see short selling as great opportunities to buy properties with a fixed investment of 26%. Buying a home through a short sale is different from buying a property at a foreclosure auction, or one that is actually owned by the bank, known as an REO or real estate property. Another risk of a short sale is losing the property to a buyer who pays everything in cash or a buyer who can make a large down payment.
With all your time and resources dedicated to short sales negotiations for months, you could lose an even better investment opportunity. Before participating in a short sale, you should always verify that the seller has been approved by their lender to do so. A short sale occurs when a seller doesn't receive enough cash from a buyer to pay their mortgages. For the most part, everyone makes some kind of profit from a short sale, although everyone also gives up a bit.
A typical short sale involves a series of steps, generally in this order, according to Bobbi Dempsey, co-author of “The Complete Idiot's Guide to Buying Foreclosures”. If you're the one selling in a short sale transaction, it's likely to appear on your credit report, but not in the way you expected. To start the short selling process, you or your real estate agent must contact your lender to get permission to sell the house for less money than you need to pay the mortgage. Rather, if you're looking to buy a short sale for a primary residence, you should first consider the following pros and cons.