Are you looking to become a first-time homeowner? If so, you may turn to foreclosures to save money. Unfortunately, foreclosure auctions are often jam packed full of professional investors. Yes, you can still try to buy a home in foreclosure, but the best option is to opt for a foreclosure short sale instead.

A foreclosure short sale is when the borrower and the lender agree to quickly sell the home. It is used as an alternative to foreclosure. To avoid poor credit markings and to avoid lengthy and costly foreclosure proceedings, both parties usually agree to a short sale. To quickly sell the home, its price is greatly reduced. Some mortgage lenders do take the home’s appraised value into consideration, but others opt for an amount near or smaller than the outstanding amount due on the mortgage.

So, why should you, as a hopeful first-time homeowner, target foreclosure short sales?

1 – Wide Range of properties Available for Sale

It is most common to see single-family homes offered for sale via a short sale. With that said, you never know. Landlords are also struggling with the poor economy. Some are making poor financial choices and others are stuck with non-paying tenants. Not only can you find single-family homes for sale via short sales, but multi-family homes too. If you not only want to own a home, but profit too, live in one of the apartment and rent the other.

2 – Cheap properties

As previously stated, foreclosure short sales are an alternative to foreclosures. Mortgage lenders have accepted the fact the borrowers cannot and will not pay them. Instead of taking a total lost and spending months and thousands of dollars in foreclosure proceedings, they agree to a short sale. In doing so, they are willing to take a small loss. This results in cheap properties for you.

Yes, short sale properties are sold at a reduced rate, but be cautious of those sold through deceitful lenders or real estate agents. They try to up the price and make more money. Before agreeing to a foreclosure short sale, compare the selling price with the home’s appraised value. It should be less.

3 – Typically Well-Kept Homes

Borrowers who approach their lender for a short sale are responsible individuals. They have just fallen on hard times. They are concerned with the short-term and long-term financial impacts of foreclosure. These individuals care, unlike those who sit in a home that they cannot afford waiting for an eviction notice. What does this mean for you? It typically means a well-kept home.

Those who opt for foreclosure short sales care about themselves, their reputation, and take pride in their home. They just can’t afford it any longer. These individuals take care of the property. On the other hand, it is not uncommon for those who receive an eviction notice during foreclosure to become unruly and even damage the property. In this instance, it means costly repairs.

4 – Can Profit Later

If you are a hopeful first-time homeowner, your goal is to find an affordable home, not make a profit. With that said, don’t forget about the long-term aspect. In five or ten years, you may wish to buy a new home or relocate across the country. This involves a home sale. If you only paid $100,000 for a home valued at $200,000, you automatically make a profit. Throughout the years of owning and living in the home, upgrades are likely. These upgrades will only increase the home’s value, meaning more profit for you.

5 – Bargaining Power

If you are in good financial standing, have the ability to obtain financing, or have the needed financial resourced on hand, you are in a good position to bargain. If you know the property is being sold as a short sale, research the home’s appraised value. This should be on file with the mortgage lender, real estate agent, and should be public record. If you aren’t getting what you deem to be a good deal, bargain. If dealing directly with the mortgage lender, ask about obtaining financing through them. This result in a continuing relationship. If you have the needed financial resources on hand, state your price and offer to make payment right then and there.

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Are you interested in profiting from the growing number of mortgage borrowers who cannot pay their bills? If so, don’t only examine foreclosures, but short sales too. Short sale properties are ones that will enter into foreclosure soon. Before that happens, mortgage lenders agree to sell the property for less than the outstanding mortgage due. They do this to move the process along, get a percentage of their money right away, and avoid costly and lengthy foreclosure proceedings.

Short sales are a great way to buy a cheap first home or turn a profit with flipping, but are they right for everyone? Not always. Like any other money making opportunity, the buying and reselling of short sale properties does have its pros and cons. So, what are they?

The Pros

You should get a good value for your money. Since short sales involve selling a property for less than the outstanding amount due on the mortgage, there is the potential to get a good value for your money. In dire circumstances, the home’s appraised value is not considered, just the amount the lender will lose through foreclosure.

Can be less intimidating. If you want to buy an affordable property or a property to flip, your two cheapest options are foreclosures and short sales. Unfortunately, if you are new to the business, foreclosures can be intimidating. This is particularly true with foreclosure auctions. They are often jam packed full of professional investors and the auctions move at a fast pace. On the other hand, short sales involve dealing directly with a mortgage lender, real estate agent, or both.

You can turn a profit. The best chance of profiting from short sales is with flipping. You buy a property, make improvements, and resell for a profit. To make a profit, you need to spend a little as possible.

The Cons

You may not get the best price. As previously stated, short sales are a good value for the money. With that said, you may still pay a lot for a property. It is important to look at the big picture. Consider the home’s appraised value. Say it is $450,000 and the borrowers still owe $300,000, and you are able to acquire the property for $275,000. $275,000 is a lot of money to pay for a home, but remember its $450,000 value. Although you pay a lot, it is a great value for the money.

Short sales do take time. Mortgage lenders have the final say in short sale approval. Unfortunately, some drag their feet. This is common when a property has two mortgages and by two different lenders. Both must agree to a short sale. The longest decision will be from the second mortgage company, as they are shorted. Some short sale buyers have waited as long as six months to receive a response. If you cannot or do not want to wait that long, apply pressure after a few weeks or month. State you are interested in the property, but losing interest. Request a decision in two weeks or else withdraw your acquire offer.

The short sale deal can fall apart. As with other real estate sales, the deal can fall apart. This is why most lenders take their time accepting an offer. They review the home’s appraised value and estimate how much they can get from a lender owned home or a foreclosure auction. Borrowers also have up to the final closing stages to make good on their outstanding mortgage. So, if a lender receives a better offer or if the borrower comes into the money, the deal can fall apart at the last minute.

Do you want to profit from the real estate market? Now, it is a buyers market. Many borrowers are unable to afford their mortgages. This is often due to job loss, poor financial choices, and adjustable rate mortgages. Foreclosures are happening at a record rate. Unfortunately, foreclosure proceedings are not a walk in the park. They are lengthy and costly for mortgage lenders and embarrassing for mortgage borrowers. For that reason, many are now opting for short sales.

If you are new to buying real estate and want to profit from buying and reselling or buy a cheap first home, please continue reading on a for a helpful list of dos and don’ts for foreclosure short sales.

DO know what short sales are. You cannot profit from foreclosure short sales if you are unfamiliar with them. Short sales involve selling a property for less than the outstanding mortgage amount. For example, if a borrower owes $80,000 on the home, the lender may accept around $70,000 or less. In dire circumstances, the home’s original value may not even be considered. So, that $70,000 may buy you a $125,000 home.

DON’T just focus on foreclosures. First-time homebuyers and new investors make the mistake of focusing only on foreclosures. Yes, they are your best chance of getting a great deal. With that said, remember they are not a walk in the park. Foreclosure proceedings take months or even years. At foreclosure auctions, there is a lot of competition, which comes from experts in investing and real estate. Then, you may be left with home occupants who refuse to leave. Short sales eliminate this problem. Mortgage lenders and borrowers reach the decision together.

DO actively search for short sale properties. Unlike foreclosures, information on short sales will not just arrive at your doorstep. Short sale properties are sold either through lenders or professional real estate agents. It is easier to spot a lender sold foreclosure. Lenders are not real estate agents. They are either selling a short sale or a real estate owned (REO) property, either way you can get a good deal. real estate agents may not outright state they are selling a short sale property, but they tend to drop hints. Look for low priced properties or listing with the phrases “lender approval needed,” or “pre foreclosure.”

DON’T fall victim to short sales for underwater homes. As previously stated, short sales involve selling a home for less than the outstanding mortgage due. This should result in a good deal, but not always. Due to depreciating home values, many borrowers are finding themselves underwater. This means they owe more than the home is worth. A typical short sale aims for less than the mortgage. With underwater homes, the selling price may be more than the home’s fair market value.

DO the research first. As previously mentioned, short sales for underwater homes aren’t a steal. In fact, you can lose money. To prevent this from happening, do the research first. In fact, real estate buyers should always research. The home’s last appraised value is public record. Find it. Remember, you want a good deal so make sure you are paying less.

DON’T wait forever. Some lenders drag their feet with short sales. This is often when a third party investor, such as Wall Street, is involved. Some buyers are on record as saying it takes months on end to receive a response to a acquire offer. Don’t wait. This increases your competition, which may drive up the price.

DO push for an answer. So, you made a buy offer on a short sale property, but are still waiting for a lender response two months later. What should you do? Of course, you can give up, but push. Contact the lender directly or the real estate agent in charge of the sale. State you want the property, but are quickly losing interest. Plainly state you want an answer in two weeks or else you will withdraw your acquire offer and look elsewhere. This should do the trick. In fact, a response may come immediately.

In short, foreclosure short sales are good opportunity for first-time homeowners on a budget or first-time investors looking to turn a profit. Regardless of which type of buyer you are, do not discount short sales, but do the research first.

auction companies are the ones gaining the most in this widespread use of foreclosure auction. They became busier than ever. When lenders and homebuilders are ready with foreclosed homes, they hire auction firms to find buyers. These thousands of foreclosure filings made each month have attracted large numbers of investors in foreclosure auctions due to the good deals embedded with each foreclosed property. This increased the opportunities of the auction companies to a great extent.

Due to the popularity gained by foreclosure auctions, new players started to enter into the auction business. The large numbers of ready-for-auction foreclosed homes led some real estate companies to taste the success of the aforementioned auction business too. These real estate companies also started an auctioning division to compete with the traditional auction firms. Since the number of foreclosed homes is incrementing on a continuous basis, the auction business proves to be one of the most profitable investments that will run for a long time.

Buyers became increasingly interested in bidding at a foreclosure auction because of the great bargains involved. First time buyers and real estate investors are attracted by the ever decreasing prices of houses as well as the comparably cheap amount of mortgage. The deals will rarely be disappointing in foreclosure auctions because the sellers are mostly government bodies who are least concerned about making profits. Furthermore, the prices of foreclosed homes are much lesser as compared to those available in the real estate markets. Many of the buyers also enjoy the environment of bidding in an auction rather than dealing with a seller face-to-face. These are some of the reasons why buyers have been pulled towards home auction.

Before the event starts, buyers are required to register in order to receive a bid card for the auction proper. Bidders must also bring with them the required amount of cash or cashier’s check, which all depends on the properties being auctioned by the auction company. Upon winning the bid on a property, the winning bidder must pay a percentage of the price as well as the amount of commission to the auction company. In some instances, bulk buyers are required to pay more and the required financial arrangements have to be made the same day.

The areas which are prone to foreclosure auctions are mostly the locations where the developers have overbuilt properties. They have either overlooked the economic downslide or the slow moving real estate business in those areas. Some buyers in foreclosure auctions are either looking for a place to settle down in or simply looking for a cheap home property to develop and sell in the future.

Most of the auction companies appoint their own bidders, otherwise known as shills, to conjure a bidding competition in order to tempt the “real” bidders to bid higher, thus increasing the selling price of the auctioned property. This must be disclosed before the auction begins so that the actual bidder knows whether he is bidding against an actual buyer or a shill. This practice is prohibited all over the Unites States; however, there is a lack of monitoring bodies to facilitate a fair auction. Sadly, this is mainly used by the auction companies to increase their commission amount. It is wise to be on the look out for such bidders that you may have seen working before the auction began.

A buyer should always be cautious when deciding to attend an auction. Only go to licensed auction companies or real estate brokers who can give you a clearer view on the properties being auctioned as well as provide the pros and cons of each property. It is better to go for absolute auctions rather than reserve auction. You should be certain that the auction companies allow you to represent your own attorney. Always remember to collect all the required information before attending an auction, so as to avoid surprises in the long run.

With the current state of the economy and the real estate market, many individuals are holding off on purchasing a home. On the other hand, you will see that professional investors are buying up properties as soon as they hit the real estate market. These properties are either foreclosures or short sales. Why do they do this? Because they are able to make a profit.

If you want to become a first-time investor, target short sales. Why?

1 – It Is a Great Starting Point

As previously stated, professional investors are buying foreclosed properties and often in large amounts. As a first-time investor, you may find foreclosure auctions to be intimidating. You are in a room with hundreds of foreclosed properties for sale, but also hundreds of experts in the field of investing and real estate. To get started, try foreclosure short sales. It is less intimating.

With foreclosure short sales, you deal directly with a real estate agent or the mortgage lender. Yes, others may be competing for the same home or property, but you will not have to meet with them face to face or go through a rigorous and fast-paced auction.

2 – You Get a Good Deal

Short sales are a foreclosure alterative. Foreclosures appear on credit ratings for at least 7 years and most borrowers later find themselves declaring bankruptcy. So, they suggest a short sale to the lender. The lender will usually agree to a short sale once the borrower has reached the point of no return. They cannot pay their mortgage and foreclosure will happen. For mortgage lenders, foreclosure proceedings are long, full of hassle, and costly. They want to avoid the process just as much as the borrowers.

As for how you get a good deal, a short sale involves selling a property for less than the outstanding mortgage due. For example, if a home is valued at $125,000, the outstanding mortgage is $100,000, you could expect to pay around $80,000 or less. Your goal is to pay as little as possible, but you still profit when the short sale price is significantly lower than the home’s appraised or fair market value.

3 – Bargaining Power

As previously stated, you want to pay as little as possible for a short sale property. This is how you make a profit. Many lenders want to unload the property as quickly as possible, even if it means losing money. Their view is “at lest we get some and the property is not our problem anymore.” On the other hand, you will find lenders and real estate agents who try to sell the home at fair market value. If you know the home is a short sale property or in pre foreclosure stages, bargain. You have nothing to lose and you may get a better deal.

4 – The Many Ways You Can Profit

As an investor, the goal is to make money. You invest money into a short sale property and use it to turn a profit. There are many ways do so. The easiest and quickest approach is to buy a short sale property, turn around and sell it. Your next option is to improve the home by making needed repairs or valuable upgrades. This should improve the home’s attractiveness to buyers, increase its value, and your profits. Your third option is to rent the property. Even single-family homes can be rented for a profit. Unless you have experienced in the rental industry or purchased a home for dirt cheap, this option is not recommended as it could take years before you see any money.

5 – The Profit You Do Make

As previously stated, investors have multiple ways in which they can profit from short sale properties. How much you make will depend on a number of factors. These include the home’s fair market value, the amount you paid, whether repairs were made, the resell price, or the rental rate. The good news is the different options give you complete control over home much money you make with short sales, how, and when.