If you’re like many people—particularly new real estate investors—you’ve heard the term “short sale” fairly frequently.
But what is it, and could it be something you should look into when you’re investing in property in Atlanta or the surrounding communities?
What is a Short Sale?
While “short sale” sounds like it refers to the amount of time you have to close on a deal, a short sale is something very different; it refers to a person selling a property for less than what they owe on it. In a nutshell, they’re shorting the lender some of the money they owe.
Why Do Banks Do Short Sales?
Many lenders would rather get something for a property than nothing at all, and if it makes financial sense, they’ll agree to a short sale. Typically, this is how it happens:
- The homeowner (who actually doesn’t own the home; he or she is still paying the bank for it) realizes that the house is headed for foreclosure
- The homeowner asks his or her lender to agree to a short sale, and the lender does
- The homeowner puts the house on the market and does all the work of selling the home, saving the bank from the hassle of foreclosure (and, in many cases, saving his or her own credit in the meantime)
The average foreclosure costs a lender about 25 percent of the home’s loan amount, so if we’re talking about a $200,000 loan, it’s going to cost the lender around $50,000 to go through the foreclosure process. If they sell the home for $151,000, they’ve saved money. (That’s a little bit oversimplified, but it’s the idea behind a short sale.)
Should Real Estate Investors Buy Short Sales?
As with any other property, it pays to do your due diligence before you buy a short sale. However, it can be a great investment—and if you need to secure financing, we may be able to help you.
Call us at 404-814-1644 or get in touch with us online to find out how a hard money loan in Atlanta can help you buy a short sale as an investment property.
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