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The first consideration in deciding whether to buy a Foreclosure or Short Sale is time. Do you need to close on the property by a certain date? In a Foreclosure you know when the auction is and you go to bid on the property on that date. In a Short Sale, you're constrained by the banks timeframes. Be prepared for a process that lasts two or three months or more.
Depending on the goals of the Buyer or Investor we often prefer Short Sales.
On the upside for Short Sales:
When bidding on a foreclosure, you do not get to examine the property. It is bought as is, sight unseen. You may find a foreclosure bargain and be able to quickly flip it, or you may become the proud owner of a money pit where you're lucky to break even (or worst) in order to get out from under it without putting in additional cash. Some Foreclosure Investors that I work with have tell me that if they make money on Foreclosure investments 70% of the time, then that is a huge win for them.
In a Short Sale we'll submit a standard Colorado State Real Estate Contract. Even though the bank will claim that it has to be an "as is" sale, you are protected, as the Buyer, by ensuring that you have the right to inspect the property. This helps you in a couple of ways. First, if there is any damage to the property, you're able to get estimates for repairs and determine how serious the damage is and if you still want to move forward on the transaction.
If the costs to fix the damage impacts the offer price enough, you can notify the bank about the damages found (which the bank will now need to dicslose since you've made them aware of it) and it's a point of negotiation. We will ensure your protection in the offer contract that you're are able to back out if the inspection isn't satisfacory to you. And since you can back out, you have nothing to lose if you make a new offer based on the results of an unsatisfactory home inspection.
Since there is time in a Short Sale for the buyer to inspect and asses the property, the investor knows, before they buy, what the potential upside of the investment may be.
The Downside of Investing in a Short Sale
If you're in a hurry, if you have a 1031 Exchange, then a Short Sale is not for you. If you decide that investing in a Short Sale is something you want to do you must be patient. In a Short Sale you're limited by the bank. They will get to your transaction when they're able to get to it. It's not that they're lazy, by any means, it's just that they face a huge workload and backlog.
Things will get done when they get done. One thing that our team will do is to stay on top of deadlines and alert the bank about any milestones that can't be missed. So for example if the sale date of the property is approaching we make sure that the Lender's Loss Mitidation Department is aware of it and see if we can push the Closing or have them request to move the sale date out.
Comtact us now if you're ready to start investing or would like more information.
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