Buying A Short Sale By Yourself

Dated: July 14 2020

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Are you looking to buy a short sale? Then this is for you. Contrary to what must have read or made to believe, buying a short sale is not as difficult as it is portrayed. This article offers five simple steps to follow when buying a short sale. But before that, let’s get familiar with the short sale itself.

Short Sale Explained

A short sale describes a situation where the mortgage lender has to sell a property for ‘short’ of the money owed because the property owner owes more on the unpaid mortgage than the value of the property. A short sale is better than foreclosure for both parties, although the lender is less favored (they take a loss). On the other hand, foreclosure means the lender will take ownership of the property because the owner could not pay the mortgage. Why should you buy a short sale?

There are a few reasons you should consider buying a short sale.

1. They are cheap. It only makes sense that a property that is to be sold just to settle a part of an unpaid mortgage balance will be relatively cheaper. So, if you are looking to buy a property below the market value, consider a short sale.

2. The financing terms are better. Considering that everyone involves wants to get over with the deal, the buyer tends to get much better financing terms. The longer the property stays, the more costs and debts accrued. So, the seller will offer an irresistible deal as much as possible.

3. There is free equity. The nature of short sale properties – they are fixer-uppers sold under the market value – makes it easy to add equity to the property. The value of such a property skyrockets with a couple of repairs and renovations. Why should you not buy a short sale? As expected, anything that has benefits must have disadvantages.

Here are a few about short sale investments.

1. The process is long and sometimes complicated. The shortest processing time of a short sale investment is a month. In some cases, it may linger for as long as a year. This is usually due to the difficulty of getting the lender’s approval.

2. You buy as-is properties only. Short sale properties are non-negotiable. You are buying the property ‘as-is,’ even when there are imminent repairs and improvements.

3. It may cost you other opportunities. While you are busy investing time and effort in securing a short sale deal, you will most likely miss out on other profitable real estate deals.

4. Short sales depend on the approval of the mortgage lender. Yes, without the lender’s approval, it is practically impossible to conclude a short sale. This means that both parties – the mortgage lender and the homeowner – must give approval. Steps to buying a short sale.

Having highlighted the pros and cons, let’s take a look at the steps involved in buying a short sale.

Step 1 – Start with a short sale property search. Buying a short sale all starts with an investment property search. Now, the question is, where to look? We have some heads up for you. Start by checking public records, i.e., short sale property listings. They are available at county recorder’s office, local and national list providers, and title companies. You may not get property descriptions or photos from these listings, but you can retrieve the home address of the property owner and the name of the lender. You can also find short sale listings by consulting real estate wholesalers and agents that work with lenders, buyers, and sellers in your neighborhood.

Step 2 – Conduct real estate due diligence. Now that you have found the right short sale property on the listing, the next step is to do more research on the property. Do a proper inspection before making an offer, perhaps with the help of a professional home inspector. The inspection will reveal if there are renovations or repairs to make (or not). If there are, you should consider them when making an offer. Your real estate agent will also help you to do a comparative market analysis. You need to compare the real estate comps of the property in the area. This puts you in a better position to make the right offer and estimate how much equity you may gain based on the offer. Lastly, check for encumbrances and liens on the property by doing a title search.

Step 3 – Sort your investment property financing. One feature of a short sale deal is the speed – it is always fast. You must be ready to close as early as the seller’s lender wants. You need to ensure the preapproval for your mortgage in time, but you may not worry about this if you are paying cash. Your ability to meet the financial demands of the deal promptly shows your seriousness in the property and the deal, and the upper hand over other bidders.

Step 4 – Prepare and make your offer. Since the finance is sorted, you can proceed to make an offer for the property. Offering a price that is close to the listing price is recommended to increase your chances of approval. There may be a counteroffer from the lender. However, you must not go beyond your predetermined maximum price when making another offer. If the lender does not find this maximum price suitable, feel free to walk away. You may need the services of a professional real estate agent for this stage.

Step 5 – Close the deal. The last step is to finalize the proceedings. You will need the services of title companies and similar settlement agents. The seller’s lender usually sets a specific date to meet – the closing date – and conclude the deal. Final Thoughts Buying a short sale is one thing you can do on your own. However, you must understand every aspect of the process and how it works. Without this, you may end up making the wrong investment decision buying a short sale. Do not hesitate to bring in real estate agents with experience in short sales to offer professional assistance as and when required.

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