Short sales are where homeowners find themselves “underwater,” meaning that they owe more on their homes than the properties are worth. When the real estate market crashed in 2008, this happened all across America.
Even though real estate prices have made a great comeback in most U.S. markets, there are still many property owners who owe more on their loans than the properties could sell for. Turning to a short sale as a way to get out from under the debt is one way for them go and for investors to buy homes at below market value.
A short sale is used when the amount of money that will result from selling the property will fall short of the amount that is owed on the property. For example, if a homeowner owes $100,000, but only be able to sell the property for today’s market value, which is $80,000, it would result in a $20,000 short sale.
Most banks and other lenders are sometimes willing to accept a short sale because the expense of holding onto the property, foreclosing on it, or maintaining the property until it can be resold is greater than the amount of money they would lose in a short sale.
As real estate investors, we can purchase a short sale property that may result in instant equity. Because of the length of time it takes to close a short sale, traditional buyers shy away from these types of deals. This means that, in the example cited above, the bank might need to price the home at $70,000.
To learn more about short sales and other types of real estate investing strategies, CONTACT US!
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