In a real estate market with so many deals lying on the market, most real estate investors get confused where to get the best investment deals.

Do you get foreclosed REOs from the bank? Should you do short sales to get a discount on the mrotgage from the bank? Or should you buy directly from the motivated sellers?

This article sheds some light into these 3 situations.

Each method has its good and bad sides; let's look at each one:

1) Buying bank foreclosed REOs

Banks have too many foreclosed properties and they increase in number every day. As soon as they acquire them, they then try to sell them quickly.

Buyers are few and these properties can take a long time to sell.

Banks are therefore willing to sell them less than their market value, even more so if they need repairs.

Real estate investors should shop carefully because not all of them are profitable.

2)Short Sales

Banks foreclose on houses where the mortgage is in default. Before they foreclose, they are often willing to take less than the mortgage balance. This is called a short sale.

First a bank has to do an appraisal to find out the true market value. Then they can give you a discount on the mortgage based on their numbers.

A bank that holds a first mortgage is likely to offer very little discount on the mortgage, usually not more than 20% especially if it does not need major repairs.

A bank that holds a second mortgage can lose 100% of their investment in a foreclosure, so they are more willing to negotiate much lower. It is not unusual to get 80-90% discount on a second mortgage.

It therefore makes a lot of sense to do a short sale on a property with more than one mortgage.

Short sales can take 4-6 months. You must therefore have enough patience and capital to last you through such long waiting periods.

Banks can reject your short sale application even when all numbers look good. Be prepared for rejection.

If your short sale is approved, you must close fast. Banks will not accept creative financing on short sales.

When all is said and done, you can create a lot of equity and profits as long as you select the right deals, have patience to wait for a long time, can take rejection, and you can close fast.

3)Motivated sellers

You can employ a wide variety of techniques to buy houses from motivated sellers.

This includes creative financing.

If the mortgage balance allows, you can also negotiate with flexibility directly with the motivated seller. And you can be as flexible as you need when closing, e.g. you can wholesale a deal right from a motivated seller to a wholesale buyer.

This is always the best way to buy investment houses as long as you can target people in need of selling their houses.

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Negotiating with banks to buy properties for less than the mortgage balance can make you big profits in real estate investing. Not all short sales are potentially profitable, while some can make you lots of money.

This article guides you where to get the most profitable short sale deals.

Even though all short sales involve negotiating for a discount, some of them are a pure waste of time

You should target only the profitable short sale deals as a real estate investor.

1) Target motivated sellers directly

The best properties for real estate investing come from motivated sellers.

This must happen before a bank forecloses on the properties.

The mortgage payments must be at least 2 months behind for banks to consider a short sale.

You can target these motivated sellers by targeting people in legal trouble who own real estate. These include people going through divorce, burned landlords, people with liens, people who have inherited properties, vacant houses, expired listings, etc.

These people mostly need to sell their properties, even though they have not put them on the open market.

2) Make sure you have enough time

In some states like Texas, when a foreclosure is files by the lender, it is usually foreclosed within 3 weeks. Other states allow several months.

Make sure you have enough time to get the bank's attention before they have to foreclose on the property. It can take a long time just to get the bank's attention.

3) Target deals that have more than one mortgage

A lender for a second mortgage can lost all their investment in foreclosure. They are therefore more willing to negotiate than the holder of the first mortgage.

It is not unusual to get 80-90% discount on the second mortgage. If the first mortgage lender offers 10-20% discount on the first mortgage, you can make a clean profit on the deal.

4) Avoid short sales listed in the MLS

Real estate agents approach banks and list deals as short sales. Of course, the more they can fetch the better for them.

Real estate agents will not tell you the mortgage balance. And of course they will not tell you if there is one or two mortgages.

This means your offers will be blind. As a real estate investor, it is in your best interest to get the mortgage balance before you can make any offer to buy a property.

Sometimes you might a good deal from listed short sales, but mostly you will offer too much or too little. And of course you will waste too much time because most of your offers will be rejected anyway.

You are most likely to find the best short sale deals from motivated sellers.

More Information:

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