Should Short Sale Investment Be Part of Your Strategy?
The short answer: no. But, that doesn’t mean it shouldn’t be an arrow in your quiver. Sometimes, short sale investment is right on target and that is why you should know the basics of a short sale. If you understand what a short sale is and what the rules are for your region, then you’ll know when the ideal short sale investment opportunity presents itself. However, because short sales are often fraught with lengthy negotiations, hidden property damage and insignificant profit margins, they shouldn’t be leveraged as a strategy.
In recent years, we’ve seen a rise in short sale investments, due in part, to a plummeting housing economy but also to changing rules and innovative thinking on the behalf of investors. For example, Housing Angels in Nevada was founded on the premise of buying a short sale, then renting it to previous owners with the option buy it back.
Short sale investors manage significant returns in this type of scenario. The key is avoiding the arm’s length agreement that prohibits this type of scenario. In some states, banks can no longer enforce an arm’s length agreement and in others, banks are willing to waive it. Investors run into trouble if they or the previous owners lie about the intended relationship to the lenders.
Keep these tactics in mind when considering a short sale:
- Know the rules. Short sale rules vary from state to state.
- Hire a realtor well versed in short sales.
- Be deliberate about your offer. Understand the approval guidelines of the lender you are making the offer to and fall within them.
- Do a market analysis to make sure you really are getting a deal.
- Negotiate exit language that will save you in the case that the home needs unforeseen repair work.
- Don’t get stuck; meaning, short sale processes can be tedious and ultimately unfruitful. Don’t invest all of your energy into this one opportunity. Be consistently on the lookout for other options and pursue them.