Property Development Basics- Understanding Short Sales

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  • Author Justin Trapp
  • Published April 20, 2011
  • Word count 503

If you have been looking at property development opportunities, you may have seen short sales and foreclosed properties listed for sale. These seem like great chances to purchase a property for development at prices that may seem very affordable. But what is a short sale, how can it be an advantage for you and what are some of the drawbacks that you need to be aware of? Here is the information that you need to know.

What a short sale is

A short sale is a property that is for sale for less than the amount of any mortgages or liens that are connected to that property. If someone is having difficulty paying their mortgage but does not want to go into foreclosure, they may be able to get the financial institution that holds that mortgage to knock some of the debt off in order to sell the property. The theory is that a lower price may make it more appealing to buyers and that the bank will get some, if not all, of the money that they invested in the property.

Many properties went on the market as short sales due to the recent economic crisis. In some areas that were particularly hard hit there may be hundreds of these properties available for sale. In some of these places the market is beginning to bounce back a little and some great properties are being snapped up at great prices.

The advantage of a short sale

The main advantage of a short sale is price. Often, the price on these properties is quite low. The bank wants to get some of its money back and by the time a property has gone into a short sale situation it is likely that the owners just want out as well. If you are in the market for inexpensive properties that you can flip and resell, the low price tag may attract you to one of these properties.

The drawbacks to buying one of these properties

The idea of being able to get fantastic properties at affordable prices may seem fantastic at first but there are a few drawbacks that you need to be aware of. The first is that with a short sale property, the bank and the seller both have to approve your offer. If one or the other does not like the amount that you are offering or the terms that your offer is conditional on the sale will not go through. Because you are dealing with a group of individuals, you may find that approval or rejection of your offer will take a very long time to finalize as well.

The second drawback is that you tend to get short sale properties in "as is" condition. Even if a house inspection turns up significant problems with that property you generally cannot reduce the price that you offered to pay. You have to decide whether or not you are still interested in the deal or whether you want to walk away from it.

Justin Trapp is a Licenced Property Broker who writes about topics concerning Property Investment and development in the USA, To find out more about him visit his website www.us-properties-direct.com

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