Q:  I got an email stating that because of the abundance of foreclosures, the short sale is the way to go right now. How do you feel about this and what are the pitfalls of implementing this strategy?

A:  Foreclosures and short sales are great strategies for this market. That email is true. Foreclosures are on the rise and that is good for short sales because the more mortgage defaults (foreclosures) that a bank has on their books the more likely they will be to work with you on the price of the home. With a foreclosure you are really looking for equity built into the deal vs. a short sale where you can essentially create equity with the deal. The hard part is finding banks or homes that are desperate enough to accept a short sale.

I have executed a short sale with a pre-foreclosure to save the bank time and money. This is a good strategy because foreclosure costs the bank a lot of money. A statistic I saw a while back stated that the foreclosure process costs a bank over $30,000 on average. That number is only increasing as the foreclosures rise. Banks will be willing to work with you and short sell a property if they can avoid the foreclosure process. Another great time to execute a short sale is after the property has been foreclosed on by the bank and it has been on their books for a period of time. Remember, banks are in the money business NOT the real estate business. They don't want to own property. The best way to go into a short sale is with a lot of research. You will want to have market comparables and explain to the bank why you feel your offer is fair.

You should explain your discount with comparable houses and repairs that need to be done to the home. Justify your offer. The other big mistake a lot of investors make is they explain their situation to 10 different people. Find out who is in charge of making the decisions at the bank and speak to them directly. No need to waste your time. If you go into a short sale prepared you are going to have a much better opportunity of getting the property at the price you are offering. I hope this helps. Let us know if there is anything else that we can help you with.