Big Profits in Flipping Short Sale Properties

by Jennifer Minge

Foreclosure is a devastating experience for the property owner but there is light at the end of the real estate tunnel that can benefit both the homeowner and potential real estate investor. The alternative to strapped home owners is to convince their lenders to accept a short sale.

What is a Short Sale?

A short sale is when a bank agrees to discount a loan balance due to economic or financial hardship on the part of the homeowner to avoid having to foreclose. Banks are willing to accept short sales because they do not want to take possession of a non-performing asset plus the cost to the bank of foreclosing on a property can be very expensive. Banks lose less money when they accept a short sale than in a foreclose.

The biggest challenge facing real estate investors is finding deals with equity which can be capitalized on to create a profit. Short sales have the potential to create huge profit since investors can negotiate a selling price that is well below the market value of the property. Voila! Instant equity!

Short Sale Procedures

When a homeowner is in pre-foreclosure investors can contact them about the possibility of negotiating a short sale with their lender. The homeowner must be willing to cooperate on the short for the bank to accept your offer. This is because the bank will want proof that the homeowner is facing financing difficulty by providing them with bank statements, tax returns, pay stubs and a hardship letter. If the homeowner is not willing to provide this information then you will not be successful.

Homeowners who want to avoid the financial impact of a foreclosure will provide the necessary documentation that is needed to submit a short sale. The first thing you will need to do is to contact the bank and request their short sale packet. This packet will contain all the information the bank requires to consider a short sale. You submit all the requested information to the bank and wait for them to accept your offer. If a homeowner owes $100,000 on a house that is now worth only $95,000, it is not unusual for a bank to accept a short sale for $65,000.

Profiting on the Deal

Now that you have negotiated a successful short sale, how can you profit from your efforts? The best way is to flip this property to another investor for a quick profit. It is not difficult to find investors who are willing to purchase properties well below market value. You can take the property that you negotiated a short sale for $65,000 and sell it to another investor for $70,000. This provides the investor with a quick $5,000 profit. Not bad for a few days work.