Real Estate Investing: Short Sales and the Recession

You’ve probably heard by now that the real estate market has crashed. Unfortunately, the crash has caused a lot of grief for homeowners that have had to leave their homes due to foreclosure. Many more are on the verge of foreclosure and simply cannot afford their mortgage payments any longer.

A foreclosure causes a chain of events that can leave a family without a home and without hopes of purchasing another one any time soon. For this reason, many homeowners will do whatever it takes to avoid foreclosure. This is where you come in. You can purchase these homes for a fraction of their value, help the family avoid foreclosure and make a tidy profit for yourself. Buying a home that is in foreclosure while it is still owned by the family is called a short sale.

There is an abundance of properties that you can buy via short sale in this economy. A real estate agent can help you find such properties or you can do the leg work yourself. All foreclosures have to go through the court system. And since court records are public records, you can access this information yourself at the courthouse.

Once you find a home that is in foreclosure, you will need to contact the owners. Before you do so, however, you should make sure that the home can be purchased for a bargain. All of the information you need can be found at the county recorders office. Information that you might find useful with include the original mortgage note and the value of other properties in the area. If the value of similar properties in the area is higher than what the owners paid on the home, you will likely get a great deal.

For example: Let’s suppose that you find a property that is valued at $200,000 according to comparables in the neighborhood. The mortgage of the home was originally $120,000. The homeowners have paid on the home for quite a while and have paid the loan down to $80,000. But they are desperate. They are willing to let the home go for $100,000. Their home is paid off and they end up with $20,000 to find new housing and pay off bills. You end up with an investment opportunity that is bound to make money.

You may also want to give the homeowner an option to stay in the home and rent it from you. Once they get their credit patched up, they can buy the property from you for a predetermined price. You will not only make money from renting the property, but you will still make a tidy profit when the family takes back ownership of the home.

Do not think of this type of investing as predatory. You are not taking advantage of a family in need; you are giving them time to get back on their feet, something that would be much harder if they were foreclosed upon and evicted from their home.