As wholesalers, it’s essential to understand the various strategies and tools that work within the real estate industry.
One of those strategies is the short sale, something that can benefit wholesalers and homeowners when it comes to closing a deal.
Short sales can be a great strategy that leads to good profit margins, but it does require a lot of due diligence and patience.
We’ll be diving into the ins and outs, benefits, and how to make them work for you.
What is a Short Sale?
A short sale is a real estate transaction where a homeowner sells their property for less than the outstanding mortgage balance.
This usually happens when the homeowner faces financial hardship, like a divorce or growing medical bills, and can no longer afford their mortgage payments. The lender then agrees to accept a discounted payoff to release that mortgage.
The end result: the homeowner is able to avoid foreclosure.
The key is that the lender must approve of the short sale because they essentially are going to be taking a loss on the loan itself.
But in many cases, it’s in their best interest to take the short sale because it’s most cost-effective and a less time-consuming alternative to the foreclosure process.
“Jamil, that sounds like it’s more beneficial to homeowners. How is it relevant to wholesale real estate?”
There’s your answer 👇
How Does a Short Sale Work in Wholesale Real Estate?
There’s four big reasons why wholesalers would keep short sales as an investment strategy:
1. Motivated sellers
For starters, short sales can offer up great deals on properties because of the distressed situation the seller is in and as wholesalers, we have a great opportunity to secure a property under contract at a discounted price.
This of course does not mean we want to take advantage of a homeowner’s situation; we still want to convey compassion and understanding when dealing with these situations. However, it does mean that the seller is more motivated to sell in order to get out of their predicament.
Additionally, lenders may be willing to negotiate on the sale price since they’re trying to recoup as much of their loss as possible.
With all that said, short sales can be a lengthy and complicated process. There’s usually multiple parties involved, like the homeowner, the lender, a real estate agent, and of course, you as the wholesaler and potentially a buyer.
2. Pre-foreclosure properties
Short sales help you tap into the pre-foreclosure market, which consists of homeowners that are behind on their mortgage payments but they haven’t gone through the foreclosure process.
In this market, homeowners may be more open to selling their properties at a discounted price, which can be great for wholesalers.
3. Less competition
Due to their complexity and lengthy process versus traditional real estate transactions, many real estate investors tend to shy away from short sales. As a wholesale, this tends to give us less competition and a better chance to secure a good deal.
4. Potential for equity
Since lenders will often willingly accept a discounted payoff to avoid foreclosures, there’s the potential for built-in equity during a short sale. This means that your buyer may have equity when they purchase the property.
When it comes to finding areas of short sale opportunities, there’s a few ways you can approach them:
Build relationships with distressed homeowners
The first way to find short sale opportunities is by building relationships with homeowners who might be in a distressed situation.
They might be behind on their mortgage payments, facing a foreclosure, or any other type of financial hardship, and by reaching out to them, you can offer to provide a solution to their situation.
Again, we’re not out to take advantage of homeowners who are in desperate situations; we’re there to provide a service and a solution to a current challenge they’re facing.
Work with real estate agents
I’ve said it numerous times – working with real estate agents can be a great resource for finding different wholesale opportunities, including short sales.
Agents who specialize in working with distressed properties may have access to listings that aren’t available to the general public and might also be able to connect you with homeowners who are looking for a short sale.
This is why agent outreach is a tremendous source of opportunity – agents can connect you to so many people, including homeowners.
Networking
Networking with other investors is also another great way to find short sale opportunities.
Meetups, conferences, and even joining social media groups can lead to connecting with other investors who are looking to sell a distressed property.
As always, be sure you’re disclosing your intent in these matters and what exactly you’re looking for.
To learn more about how short sales work and how to make them work for you, watch this interview I did with Dohn Thornton on how he became one of the top short sales investors:
Short sales can be a great short-term investment strategy for new wholesalers or, as Dohn Thornton demonstrates, a consistent investment tool that can help homeowners avoid foreclosure and get out of their financial situation.
If you want to start diving into short sale strategies, then come and join us at AstroFlipping.