A short sale is a form of pre-foreclosure sale where the lender agrees to accept less than the loan amount to avoid foreclosure. Such a short sale results in a discounted purchase price for you as the purchaser, and can benefit home owners and lenders too.
One of the key differences between this and other kinds of property purchases is that you are under a time constraint - you must negotiate the sale before a specified date or the home will go into foreclosure. Foreclosure proceedings typically follow a tight time-frame, so you need to identify a suitable property, get in touch with the home owners, inspect the property, and make an offer that's acceptable to both the owners and the lender all within this period of time!
The most obvious benefit to you as the purchaser of a pre-foreclosure property is to get the property for much less than its true market value. If you are confident that you can get the property at a substantial discount, you can virtually lock in a low risk profit.
Even so, to secure a short sale, you must convince both the home owner and the lender to allow you to buy the home. That's where you need to emphasize the benefits of the deal to them.
For the home owner, selling to you during the pre-foreclosure stage of foreclosure proceedings allows them to save their credit history from being marred by having their home foreclosed. While the short sale will be noted on their credit file, this outcome is still much better than having their home foreclosed, their credit history ruined, and the possibility of enduring bankruptcy.
Meanwhile, if the home owner doesn't have much equity in the home, the lender may also favor a short sale. Basically, the less able the lender is to foreclose the property and sell it for close to its retail value, the more likely it will agree to a short sale. Plus, lenders often want to avoid the hassle of going through foreclosure proceedings.
If you are able to reach agreement with both the home owner and lender, you'll have the chance to derive a substantial profit from the property you buy via a negotiated short sale. So be sure to include this in your arsenal of exit strategies!
