The real estate industry has a wide range of properties that investors can choose from. One of the most lucrative investments in real estate is short sale homes. So, what is a short sale in real estate investing?
A short sale happens when a property owner falls back on mortgage payments due to financial distress. As a result, the home ends up being sold for less than is owed on the existing mortgage. In this way, both mortgage lenders and property owners can avoid the long and costly foreclosure process.
Before we take a look at the ways of how to find short sales, you should know exactly what you’re getting into with this type of real estate investment. Here is a brief overview of the pros and cons of buying short sale properties.
Pros of buying short sale homes
- Possibility of a good real estate deal – Since property owners and banks are motivated to sell as soon as possible, you are likely to get the home below market price.
- Less competition – The process of buying short sale homes can take a long time to conclude, and many buyers don’t have enough patience. This means that you are not likely to face much competition in bidding.
- Less risky – Unlike foreclosures, short sale homes for sale are usually in good condition since owners are still living in the house. Real estate investors don’t have to worry about vandalism or neglect.
Cons of buying short sale homes
- Long and frustrating process – With all the creditor approvals required, short sales can drag on for a long time with no assurance that the real estate transaction will be approved.
- Possibility of costly repairs – Although not common, a short sale property could become distressed since it’s likely that the owner cannot afford maintenance or repairs. This is why an inspection is important before making an offer.
How to Find Short Sale Homes for Sale
If you’re wondering “How can I find short sales near me?”, here are some great ways to find short sales:
1. Multiple Listing Service (MLS)
The MLS has become one of the most reliable ways to find short sales. Users can customize their searches in order to find what they are looking for in the comprehensive database of short sale listings. However, short sale listings are not always obvious unless you know how to spot them.
When looking for short sale homes in the MLS, you need to be proactive in order to stay ahead of the competition. Besides looking for the term ‘short sale’ in the listings, you should also check for terms such as:
- Notice of default
- Subject to bank approval
- Preapproved by bank
- Give the bank time to respond
- Headed for auction
- Third-party review required
‘Third-party review required’ at times means that the relevant paperwork has not been submitted to the lender for approval.
2. Network with like-minded real estate investors and wholesalers
Working with like-minded real estate investors is a great way of finding short sales for sale. Besides being familiar with their neighborhoods, they might also have short sale investment properties that are waiting to be sold. Some of them will have a buyers list which comprises investors that are ready to purchase a property to which they can add you. That way, you will be notified when they do find a short sale. As wholesalers, they use their extensive resources and networks to help other real estate investors find short sales.
One of the best ways of networking with other investors and wholesalers is by attending a local real estate investor (REI) meeting. Simply browse the internet and look for an REI club meeting near you. Even before attending the meeting, get in touch with the organizer and let them know what you are looking for. This could provide an opportunity to get introduced to other real estate investors as early as possible.
3. Look for investor-friendly real estate agents
Local real estate agents are very conversant with their neighborhood and might already be aware of homes that are almost getting foreclosed. Working with a real estate agent can, therefore, be a very effective strategy for how to find short sales.
Here are the qualities to look for in a good real estate agent:
- An understanding of the local housing market
- Experience handling short sales
- Strong communication skills
- Honesty and integrity
- Passion for real estate
- Ability to negotiate
4. Check local courthouse records
When a property owner does not pay their mortgage for several months, the lender will file a notice of default. In case the homeowner fails to negotiate a solution with the bank or pay the balance required, the income property can then be considered a short sale. When you visit your local courthouse, you will find public records of pre-foreclosures. You can also contact title companies, the County Recorder’s office, or pay a fee for national or local list providers.
5. Use online real estate websites
Online search engines such as Google can provide a lot of information about short sales. All you need to do is type ‘short sales [your area]’ to see numerous listings of investment properties for sale. Alternatively, you can look for online platforms specifically designed to help real estate investors find off-market property.
One of the quickest and easiest ways of finding short sales is the Mashvisor Property Marketplace. Once you find a listing, you can use Mashvisor’s investment property calculator for analyzing short sale deals using metrics such as cash flow, cash on cash return, occupancy rate, cap rate, and monthly expenses. Other types of investment properties listed in the Marketplace include tenant-occupied rentals, bank-owned properties, and foreclosures.
Short sales are real estate investments that favor buyers that are patient and have a knack for spotting great deals. However, to reap the benefits they have to offer, you must know how to find short sale listings and maneuver the long process. If you have ever asked ‘How do I find short sales near me?’, apply the tips listed above and enhance your chances of success.