Looking for big profits in short sales? An internet search for the phrase “investing in short sales” brings up tens of thousands of hits, many of which offer strategies and tricks to make a killing on the rising number of short sales in the U.S. These properties are sometimes viewed as easy money because the seller is in distress. But this is not necessarily the case.
The concept behind a short sale is this: a homeowner is unable to continue making mortgage payments; however, the outstanding mortgage on the property is higher than the market value of the house (i.e. “upside-down”). The homeowner makes a deal with the lender to sell the property at market value, and the lender eats the loss.
But are short sales really the money-making scheme that many believe them to be?
Not that it’s impossible to get good deals – many investors manage to buy short sales at a discount – but investors should be aware that negotiating a short sale is no walk in the park.
“Our biggest challenge [with short sales] is getting the banks to recognize that the property is not worth what they think it is. When we submit offers, and we think it’s a fair offer, and we fight with the banks on behalf of…the buyer, it’s very difficult to get them to meet us halfway at times,” says Mia Lutz, president of Say No To The Bank, a community counseling organization that works with foreclosure buyers and sellers.
Time frame can also be a major impediment for real estate investors looking to purchase short sale properties. Short sales can take anywhere from 30 days to six months from contract to closing, and the deal can fall apart at any time.