How to Win at Investment Property Short Sales

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As an investment property owner, you want to maximize your return on investment. On the surface, short sales can look like an attractive way to get investment property at basement bargain prices. Getting a house for far less than market price can make solid investments, but of course comes with strings attached. Below, we discuss how to win at investment property short sales in Chicagoland. 

Short Sales Explained

Property owners find themselves seriously behind on mortgage payments for tons of reasons that bring them into danger of foreclosure. Owners can petition their bank to allow a “short sale” of their property for less than the outstanding mortgage balance.

If approved, short sales have fewer negative consequences to credit ratings than foreclosures for delinquent debtors. Some lenders might even agree to forgive the remaining mortgage balance. Others will pursue the remaining funds from owners after the settlement, which doesn’t exactly encourage seller participation in the process. 

Buyer (Be) Aware 

With threats of foreclosures looming, owners may feel reluctant to sell but financial hardships leave little recourse. So, when homeowners have to consider short selling, expect their emotions to run high.  

Usually sold as-is, sellers won’t have as much incentive for leaving the place in good condition, prompting some buyer surprises. They’ll stop bothering with maintenance work or structural problems because, well, why should they if they have to leave anyway? 

Should I Add Short Sales to My Portfolio?

When considering adding new property to your investment portfolio, think about how it might benefit your financial overall goals. Like all investment properties, a short sale should fit your goals instead of forcing your goals to fit a property. Instead, data on which neighborhoods have desirable locations and strong rent rates should dictate qualifications for viable options. 

Armed with data and clear financial goals, you and your REALTOR can target search specific areas and price points. Short sales can offer potential entry into additional market areas with lower purchase prices that take rehab costs into consideration. 

Where Can I Find Short Sale Properties for Sale?

Unless you know of someone in this situation, you’ll have to look for properties on multiple listing services (MLS) databases. Listings won’t always say “short sale,” so you kind of have to play a game of Clue to find them. Telltale phrases include: “subject to bank approval,” “notice of default,” or even “headed for auction.” Some homes listed as foreclosures could also sell as short sales.

 Having solid experts on your side can help you find those hidden investment property gems. Look for Chicago Association of REALTORS® members with short sales and foreclosure resource (SFR) certification through the National Association of REALTORS®. They understand these transactions and will know how to best advocate for you in interactions with sellers and lenders.  

What Paperwork Do I Need for a Short Sale and How Long Will it Take to Close?

Purchasing a short sale as an investment property will require far more paperwork than a typical investment property purchase. Also expect fierce competition for desirable investment short sales and waits up to a year or longer before closing. 

As a buyer, the process can test your patience, especially after months of negotiations with reluctant sellers or unresponsive lenders. Depend on your SFR-certified REALTOR to help anticipate documentation needs, nag lenders for updates, and cajole material from feet-dragging sellers. Their experience can also guide when you should walk (or run) away from deals that no longer serve your goals.

Buying short sale real estate as investment property is definitely not for the faint of heart. Looking for advice on a specific home or short sale purchases in general? Reach out to our responsive property managers to talk rental potential or get referrals REALTORS and attorneys who can help.

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