Pros And Cons Of Buying Foreclosure Short Sales

The Pros and Cons of Buying Foreclosure Short Sales

Are you interested in profiting from the growing number of mortgage borrowers who cannot pay their bills? If so, don’t only examine foreclosures, but short sales too. Short sale properties are ones that will enter into foreclosure soon. Before that happens, mortgage lenders agree to sell the property for less than the outstanding mortgage due. They do this to move the process along, get a percentage of their money right away, and avoid costly and lengthy foreclosure proceedings.

Short sales are a great way to buy a cheap first home or turn a profit with flipping, but are they right for everyone? Not always. Like any other money making opportunity, the buying and reselling of short sale properties does have its pros and cons. So, what are they?

The Pros

You should get a good value for your money. Since short sales involve selling a property for less than the outstanding amount due on the mortgage, there is the potential to get a good value for your money. In dire circumstances, the home’s appraised value is not considered, just the amount the lender will lose through foreclosure.

Can be less intimidating. If you want to buy an affordable property or a property to flip, your two cheapest options are foreclosures and short sales. Unfortunately, if you are new to the business, foreclosures can be intimidating. This is particularly true with foreclosure auctions. They are often jam packed full of professional investors and the auctions move at a fast pace. On the other hand, short sales involve dealing directly with a mortgage lender, real estate agent, or both.

You can turn a profit. The best chance of profiting from short sales is with flipping. You buy a property, make improvements, and resell for a profit. To make a profit, you need to spend a little as possible.

The Cons

You may not get the best price. As previously stated, short sales are a good value for the money. With that said, you may still pay a lot for a property. It is important to look at the big picture. Consider the home’s appraised value. Say it is $450,000 and the borrowers still owe $300,000, and you are able to purchase the property for $275,000. $275,000 is a lot of money to pay for a home, but remember its $450,000 value. Although you pay a lot, it is a great value for the money.

Short sales do take time. Mortgage lenders have the final say in short sale approval. Unfortunately, some drag their feet. This is common when a property has two mortgages and by two different lenders. Both must agree to a short sale. The longest decision will be from the second mortgage company, as they are shorted. Some short sale buyers have waited as long as six months to receive a response. If you cannot or do not want to wait that long, apply pressure after a few weeks or month. State you are interested in the property, but losing interest. Request a decision in two weeks or else withdraw your purchase offer.

The short sale deal can fall apart. As with other real estate sales, the deal can fall apart. This is why most lenders take their time accepting an offer. They review the home’s appraised value and estimate how much they can get from a lender owned home or a foreclosure auction. Borrowers also have up to the final closing stages to make good on their outstanding mortgage. So, if a lender receives a better offer or if the borrower comes into the money, the deal can fall apart at the last minute.