House and Home Investing

How House Buyers Can Make Money on Short Sales

Buying short sales can be a shortcut to making money in real estate, but there is more to consider than just buying and selling homes. This is especially true as the real estate market has mostly recovered from the throes of the financial crisis and if anything, this highlights the need to be vigilant in your approach when house buying. Part of the key is to be patient enough first find and then see a deal through.

What is a short sale? It happens when the owner can no longer afford the mortgage, and the balance due on loan is more than the house is worth. In this case, the lenders of the house agree that they will take less than the home’s value as an alternative to foreclosure. The approach is not new, though it has become commonplace in recent years.

With that in mind, here are some tip the experienced house buyers at Klamen Real Estate, and now you can use to make money on short sales.

  • Work with an Experienced Agent

One of the biggest reasons to work with a real estate agent is that they know the market they serve. This is extremely important when it comes to identifying short sale opportunities as most homeowners are unlikely to advertise that they are behind on their mortgages or underwater on their loans.

Another reason is that an experienced real estate agent should have gone through the short sale process in the past. As such, they should be able to help a buyer navigate the closing process. This could include making sure all liens against the home will be removed prior, or at the close, and to organize an inspection to confirm the condition of the house.

Another reason is that the close of a short sale transaction tends to take longer than the closing of other real estate transactions. While this is ironic given that the deal is called a short sale, it makes sense given the potential complications tied to transferring the deed to the new owner.

  • Manage Your Expectations

While all sorts of homes are put up for short sale, the reality is that most will tend to have issues. Maybe it is because the previous owners failed to care for the property, or perhaps it is in a less than ideal location.

Either way, another key to success when buying a home via short sale is to keep your expectations in check. Yes, there are opportunities to make money with these properties, but it is all in perspective.

Especially if you plan to purchase the property as an investment, you have to limit your expectations.  In this case, you need to have a clear idea of the condition that you will accept and the time required to convert the property from idle to revenue generating. This means having a clear plan for what changes you want to make post-close as well as access to new tenants – remember, investment properties only make money when they are being rented.

  • Money, Money, Money

While you could bring cash to a short sale, it is more likely that you will use bank financing for all or part of the transaction. As such, you want to make sure that you are pre-approved. Not only will this ease the discussion with the lender who owns the property, but it will also tick off one more item from your to-do list when it comes to closing.

If you are not aware, then a pre-approved is a letter issued from your lender which states you are likely to be granted a mortgage for the value of the home – if not more. Keeping this in mind, you do want to tend to your credit score before applying for a mortgage. This means no significant purchases and keeping your credit card balances down to a minimum.

  • Don’t Expect to Negotiate

This is especially true in the current market where short sales opportunities are less frequent then they were in the aftermath of the recession. Another thing to keep in mind is that the sellers have already marked down the property to near the minimum level for which they are willing to take it off their books.

What does this mean for the buyer? While there might be some room for negotiation, it will be on the margins – say $1,000 and not $10,000 or $20,000. However, you don’t want to press your luck, especially if the property is labeled ‘as is.’

Remember you are not buying these properties in a vacuum; as such, the goal is to find the property, perform your due diligence, and then move to close as soon as possible. Doing so will help you to make money from short sales.