Investor Blogs How to Buy Investment Properties: Short Sale vs. Foreclosure by Nadia Abulatif March 9, 2018February 8, 2019 by Nadia Abulatif March 9, 2018February 8, 2019 When buying investment property, a real estate investor always looks for cheap options that make for good real estate investments. So, for that purpose, there are two options: a short sale property or a foreclosure property. Keep reading to learn about short sale vs. foreclosure. By now, the first questions you have are what is a foreclosure and what is a short sale in real estate. To get a better understanding of the two concepts, here is a comparison in terms of the most important aspects: Related: How to Find Investment Property for Sale Below Market Value? Short sale vs. foreclosure: What is a foreclosure and what is a short sale in real estate? A short sale and a foreclosure are both financial options when a homeowner fails to repay the mortgage. However, a foreclosure is when the lender takes over the property and sells it, while the short sale is when the owner sells the property for less than what’s left for the mortgage. To make it clear, a short sale is when you have $200,000 in mortgage, and you sell the property for $150,000. Short sale vs. foreclosure: The pros and cons of short sale real estate investing What are the pros of buying a short sale? The major advantage of buying a short sale investment property is its price. You are most likely to purchase a short sale for much lower than its original market price. The reason behind this, as we said before, is that most sellers are desperate to sell the real estate property because they are behind on their mortgage payments. Therefore, for many buyers, it is, in fact, a very good deal on an investment property. Related: Short sale vs. Foreclosure: Why Opt for Short Sales in Real estate Investing? However, what are the cons of buying a short sale? There are also the downsides that come along with short sale real estate investing. First of all, the short sale process is actually long. You have to take into account that you will have to get approved by the lender for this sale. Well, if you are looking to buying investment property in a short period of time, then you would probably want to skip on short sale properties. Getting an approval from the lender might, sometimes, take up to a year. This also depends on the number of lenders, and getting an approval from them might get too time-consuming. Another shortfall of the short sale process, as a buyer, is getting rejected by the lender. As long as the process is, it would be a nightmare to wait for so long on the deal and get rejected at the end. This also means lost opportunities for a real estate investor. By the time you get an approval or a rejection from the lender on a short sale, you could have passed on some great investment opportunities. Short sale vs. foreclosure: The pros and cons of foreclosure real estate investing Now, in order to decide what makes for a better investment in terms of short sale vs. foreclosure, you should also take a look at the pros and cons of foreclosures. What are the pros of foreclosure real estate investing? Foreclosures are also selling for a price that is lower than the property’s market value. However, the difference in buying short sale vs. foreclosure is that foreclosures are sold by the lenders. When a homeowner fails to repay the mortgage, the lender acquires the property and sells it, mostly, in a real estate auction. Another advantage of a foreclosure is the foreclosure process. Looking at foreclosures to buy investment properties is worthwhile time-wise. It does not take as much time as a short sale would. After all, if you are a cash-payer, then you have a much higher chance of acquiring the deal. What are the cons of foreclosure real estate investing? As for the shortfalls of buying foreclosures as investment properties, then there are a couple. First, when you buy investment properties that are foreclosures, you take the properties “as is”. This means, most of these foreclosed properties are in distressed conditions. This also means you will have to take care of any repairs, renovations, and maintenance. Another major shortfall in buying foreclosed investment properties is financing. As a real estate investor, you know that it is easy to get financing for rental properties, for instance. However, when you buy a foreclosed home, it gets a bit more challenging. Finally, the more cash you put on the table, the higher chance you have of getting the deal. Foreclosure sellers tend to prefer cash payers. Therefore, you might want to get your finances in order first, and then proceed with looking for investment properties in the form of foreclosures. Short sale vs. foreclosure: Buying a short sale The short sale process is not very complicated. However, it could get very long as a real estate investor has to get approval from the lender. Therefore, you will have to hire a real estate agent as a first step towards proceeding with a short sale. Your agent is supposed to provide you with a list of comparable prices on short sale. But, you must understand that these prices are only a bait! A homeowner always wants to get offers on the property, that’s why they list it for way below the actual price they are asking for. After that, you begin with sending a short sale offer to the lender. This, however, is the part that makes the short sale process so long. It might take up to several months for the lender to respond. That is, of course, if they approve at all! Only after you have received an approval, you can go on with the rest of the process of buying investment property. Short sale vs. foreclosure: How to buy a foreclosed home? If you are wondering how to buy a foreclosed home, then the answer is: just like any other investment property. However, there are two major differences in the process: 1) you buy it directly from the lender or from a foreclosure auction; and 2) you have to get pre-approved for financing if you are not paying in cash. Other than that, once you have landed the deal, it is the same process. But you have to keep in mind, it is best to work with a real estate agent. Buying foreclosed homes is tricky, especially if you are a beginner real estate investor. Moreover, you will also have to perform some profitability analysis to estimate the investment potential. Related: How to Strike the Best Real Estate Deals When Buying a Foreclosed Home? Short sale vs. foreclosure: Finally Now that you know the ins and outs of buying short sale vs. foreclosure, you get to decide. If you think that a short sale process is worth the wait and the investment, then go ahead. If not, then you can still consider a foreclosed home as an investment. No matter what you decide, make sure to check out Mashvisor’s blog on short sale real estate investing as well as foreclosure real estate investing. Meanwhile, make sure to sign up for our 14-day free trial to find the best investment properties in the US! Start Your Investment Property Search! START FREE TRIAL Start Your Investment Property Search! START FREE TRIAL ForeclosuresShort Sale 0 FacebookTwitterGoogle +PinterestLinkedin Nadia Abulatif Nadia Abulatif is an experienced Content Writer at Mashvisor. She was a trainee lawyer before switching to writing about real estate. She is currently doing an LL.M. in Human Rights and International Law. 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