Short Sales, Reos Or Motivated Sellers, Which Is More Profitable?

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In a market full of mortgages going into default, a lot of real estate investors are never sure which way to go to get the best deals.

Do you get foreclosed REOs from the bank? Do you do short sales to buy the houses for less than the mortgage balance? Or do you stick to buying houses directly from motivated sellers?

This article sheds some light into these 3 situations. 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.



Should you get bank REOs? Should you negotiate short sales to buy the houses for less than the mortgage balance? Or do you stick to buying houses directly from 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 owned REOs

Banks have a lot of inventory in foreclosed homes and they seem to be piling them up every day. As oon as they get them, they try to sell them.



These properties can take a long time to sell; there are few buyers in this market.



Banks can therefore offer great discounts, especially if they need to be fixed up.



As a real estate investor, shop carefully for good REO deals because not all them will meet your buying criteria or equity margin for you to make a profit.



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.



A bank will order an appraisal to get the true market value of the property. They will then discount the mortgage if the numbers look right.



The holder of a first mortgage is less willing to negotiate, offering usually not more than 20% discount.



The holder of a second mortgage can lose all their money in a foreclosure, so are more willing to negotiate. You can get 80-90% discount on the mortgage.



A property with more than one mortgage is therefore the best candidate for a short sale.



Short sales can also take a long time, usually 3 to 6 months. You must therefore have enough patience and capital to last you through such long waiting periods.



Banks can also turn down your request even when all numbers look good. Be prepared for rejection.



Lastly as in REOs, you must close fast as soon as your short sale is approved. 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.



You also get the flexibility to negotiate easily if the mortgage balance allows. 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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