A short sale is a transaction wherein the owner opts out of mortgage by selling the property and paying the lender less than what is still owed. Basically, an owner who can no longer pay mortgage uses a short sale to avoid foreclosure. Both parties accept this process because it is relatively more beneficial to them compared to a foreclosure.

In the event of a short sale, the lender gives the owner a limited period of time to sell the property. If the owner fails to sell the house by the due date, foreclosure proceedings will begin. Lenders often agree to this kind of agreement because getting something from the home is better than nothing at all. The owner, on the other hand, will be able to avoid foreclosure if he or she chooses to put the property on a short sale. This is why they are classified by real estate investors as a pre-foreclosure product.

However, that does not mean that his credit history will not be affected. A short sale will appear in a person’s credit history for seven years. Typically, he or she will be able to get mortgage again after three years. They see those consequences as better than the effects of a foreclosure or bankruptcy to their credit history.

Short sales are an important pre-foreclosure product in the real estate investing world. This is primarily because of their affordability. Take note that these properties are sold for less than what the owners owe the lenders, for pennies on the dollar. That means you get a house for a bargain price.

However, you must be prepared to get “down and dirty” once you purchase a short sale home. A lot of them are in very good condition but many also need repair. Remember that these are properties owned by people who could no longer pay mortgage. It is most likely that they could not fund repairs as well. If you plan to buy one as your home, you better have extra money for repairs and improvements. Same goes when you plan to rehab it or open it for rentals.

Investors hunt for short sale homes because the owners of these properties are considered “motivated sellers.” That means that their main priority is to sell the property, with the price counting only as secondary. Of course your offer must be enough to shoulder the amount specified by the lender.

One thing seasoned investors agree on is that you should negotiate with sensitivity with owners of short sale homes. Listen to their story and tell them that you can help. They’ve probably undergone a lot and the last person they want to talk to is someone who will buy their home at a bargain price and make them feel that they are indeed in dire straits.