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Is a Short Sale Property the Right Investment for Me?

It’s hard to resist the temptation to purchase distressed properties, especially when you see other investors gaining strong returns from properties they acquired through short sale or foreclosure. But, like any real estate investment, buying a short sale property is not a no-brainer. It needs to fit your priorities. Keep these tips in mind when considering a short sale purchase:

 

  • Prepare for the long haul. A short sale will likely take longer than a foreclosure (we’ll talk more about foreclosures next week). Yes, it’s true the “short” portion of a short sale is a misnomer. Closing a short sale can take many, many months (think 6 or 7).
  • Make sure the agent knows what they are doing. Yes, sometimes the price of the home is worth the wait—but that’s only if the agent knows what they are doing. Short sales are a lot of work and an inexperienced agent can easily waste your time and money. If you want to focus on short sales, find yourself an agent who also focuses on short sales. Get a referral from friends and family, attend short sale open houses or ask an agent you already trust who doesn’t specialize in that area.
  • Understand BPOs. Broker Price Opinions are similar to appraisals but they cost less and are a little more controversial. They are used in the context of distressed properties. Learn how to do one yourself or better yet, make sure the agent is adept at doing them. This will give you a fair opinion of market value and it’s an important tool in determining the reality of the price (and the deal). If you are confident in the BPO and it comes in under market value, you may want to jump on that short sale before someone else does.
  • Be happy with “As Is”. If you aren’t prepared to buy the home in its present condition (with the exception of minor updates or repairs), then it might not be as good a deal as you want it to be. Short sales don’t typically have room for negotiation based on suggested repairs, potential for rehab, pest mitigation or upcoming maintenance requirements.
  • Keep a lawyer close at hand. Lenders might be inclined to renegotiate terms at the very last minute, based on market changes, new laws or information. Make sure you have a lawyer on your investment team who can help you navigate these circumstances.

 

If you enter a short sale investment with these tips in mind, you are taking an eyes wide open approach—that will help you see the best opportunities.

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