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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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.