A short sale is a sale of real estate in which the earnings from selling a property are less than the full mortgage amount it owes. The owner of the real estate (the borrower) cannot afford to repay the full amount in this case and the lender agrees to accept less than the amount originally owed to release its lien on the property.
There can be a number of reasons behind a lender agreeing for a short sale, from a depressed market, to deferred maintenance and impending foreclosure. It is believed that a short sale can never earn you profit, but if you are ready to juggle the concerned parties and wait out the bank, you can profit from these kinds of sales as well.
Understand the strategy
For a profitable short sale, it is important that you buy the property from a lender for less than what someone else will pay you for it. For example, if you can purchase a house for $100,000 and you expect a party to buy it from you for $130,00, you have a deal.
To profit from a short sale, it is important to find home sellers who cannot sell their homes for the full mortgage amount they owe. The best place to find leads is the Multiple Listing Service (MLS). On the MLS, search the houses that have been on the market for long time but have not been sold. Call the seller’s agent and ask if the owner is ready to undergo a short sale transaction. This way you may be able to purchase the house for a relatively low price, and after addressing the issues that hampered quick sale, sell it on profit.
Determine a purchase price
Based on the condition of the property and the sale price of comparable houses in the neighbourhood, determine a purchase price. Do not hesitate to negotiate; start with a relatively low price and keep negotiating until you get a bargain less than the amount for which you expect to sell the property. Make sure you leave a profit margin that covers closing costs, holding costs and repairs, if needed, and still saves you some money.
Make an offer
Once you have decided the purchase price, complete the necessary paperwork and submit it to the lender along with your contract to purchase the property. After submitting the packet, call the lender every couple of days to check if any progress has been made on the short sale.
Close the sale
As soon as you receive an acceptance from the lender, arrange a date to close on the property. Visit the lender to sign the documents and formally buy the house.
Put the house up for sale
Now as you are the owner of the house, put it up on the market for sale. Come to terms with prospective homebuyer and set another closing date. Sign all the necessary documents to sell the property. After selling the house, collect your cheque from the title company for the difference between your purchase price and the final selling price less closing costs.