Adding Up The Numbers
Apr 16, 2012 Real Estate Profit Tricks
Okay, so you now know that short sales aren’t always easy to obtain, but they can still be very worth your while. It is highly unlikely to obtain better pricing on a piece of property – even during a foreclosure auction. Once a piece of property has gone through foreclosure, not only does a lender have the defaulted loan costs to try and recoup through a sale, but also the legal expenses attached to the foreclosure process. While foreclosures are generally bargains, they won’t be “steals,” per say. Lenders will be forced to squeeze every penny they can out of this type of sale. This is just not the case with short sales.
When the potential earnings off a short sale are looked at, most investors agree this is an incredible way to buy property. Even when a short sale property requires a bit of work to make it marketable, the profit margin can be quite high. Plus, it is often possible to pick up preexisting home purchases on properties that are in near pristine condition. Even fixer uppers can be well worth your while though. (We’ll talk about those a little later).
To get a good idea of what a short sale purchase can mean financially, it helps to take a look at a scenario.
Let’s say a payoff, and for simplicity sake the value, on a two-story home with a two-car garage is $218,000. Through short sale negotiations, you manage to buy the property at $150,000 free and clear. Now, let’s say you put $5,000 into repairs and renovations to make the property more marketable to buyers. To sell the property quickly, you let it go for $200,000. This price gives the buyer instant equity, which is always attractive in a purchase situation. Plus, it would give you a profit of $45,000.
While it’s true that not every short sale will have a scenario with this high of a profit margin, many do. Banks are simply more willing to negotiate prices in a downward fashion when they haven’t invested a lot of money in the legal process to foreclose.
The trick to making sure your short sale purchases are decent when it comes to profit margin involves doing your homework in advance. You need to learn how to deal with lenders directly. You also want to know the ropes of working with a real estate agent to find and purchase property that is not only worth investing in, but also likely to turn around in a fairly quick fashion. Relying on an agent will have you paying out a commission, but it can be money well spent. This is especially so if you are unfamiliar with the communities in which you plan on buying.
Once you get the ball rolling with making short sale purchases and turning them around, you will find this method for buying can work to your advantage in a number of ways. Some of the potential perks of going with short sales include:
- Getting a purchase for the lowest possible price
If you strike while the iron’s hot as we mentioned before, banks will be more likely to negotiate. If you can get a property for a lot less than its value, you will be able to make a profit – even in this market and even if you have to hang on to it for a while.
- Not having to deal with foreclosure auctions
While very good properties can be purchased at great prices during foreclosure auctions, this mode of buying often involves a lot of competition and it can involve an almost “blind” purchase. With short sales, you have some time to do your homework on the property, too. This is essential for helping you understand a property before you buy and what your chances for success with profits truly are.
- Helping homeowners in need
Short sales not only help banks cut their losses, but they can be a real boon to homeowners who are facing financial burdens. If their obligations can be partially handled through a short sale and their records freed from a potential foreclosure, they will be better positioned to start afresh. While this might not matter to you as an investor, it can prove to be a strong altruistic motivator for some.
Purchasing a property through a short sale deal can simply give you the greatest possible profit margin to work with. In turn, this can give you the leverage you need to make your money back and then some on a resale. After all, it’s always smarter to buy something for less and then turn around and sell it for more.