» Example of How to Negotiate a Short Sale » Posted by Realestator      

Yesterday, we discussed what is a Short Sale. Today, let’s show an example of How to Negotiate a Short Sale.

In theory, the bank already knows it is facing a Short Sale situation if they try to sell the property either at auction or on the open market, so you will be saving them time and hassle of doing that by offering to pay off the loans. But not the face value. This is how you regain some of the equity in a property, and this is why Short Sales can be profitable to real estate investors.

Let’s say you’ve found a homeowner who has two mortgages on their property for a total of $100K. The 1st is for $80,000, and the 2nd is for $20,000. The house, however, now has a fair market value of $85,000. So you offer the 1st lender $70,000 and the 2nd lender $5,000 and they accept. You’ve just made an instant $10,000 in equity (paid $75K, house worth $85K), the homeowner can walk away from their property free and clear without damage to their credit and no more mounting bills, and the lenders have at least recovered some of their original loan amount. WIN-WIN-WIN.

Now you might be saying there is no way the 2nd lender would discount their note by $15,000. But remember, if this property goes to a foreclosure auction and sells for $80,000 or less, the 2nd lender will get nothing (the 1st lender always gets paid first)! So $5,000 is better than zero!

How much you can discount a note is going to vary by state and area and will depend on the overall market conditions (remember supply and demand), but start low and work you’re way up to an amount you can live with. Or just walk away and move on to the next property if you can’t get an amount that will make you money - there’s always another property waiting out there.

Again, this is too complex of a subject to try to tackle without some education, so do some research if you are considering this strategy. For someone with persistence, a willingness to put up with the agonizingly slow bureaucracy of lending institutions, and a lot of motivation, there are very good profits to be made with Short Sales!

For more real estate investing information, visit the realestator’s website at www.real-estate-investing-support.com

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» Posted in Buying Methods on May 27, 2008.

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