Short sales are a great way to buy a cheap first home or make a profit on your investment, but are they right for everyone? Not always. Like any other money-making opportunity, buying and reselling short sale properties has its pros and cons. So what are they?

The professionals

You should get good value for your money. Since short sales involve selling a property for less than the outstanding amount owed on the mortgage, there is the potential to get good value for your money. In extreme circumstances, the appraised value of the home is not considered, but only the amount the lender will lose due to foreclosure.

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

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

The cons

You may not get the best price. As stated above, short sales are good value for money. That being said, you can still pay a lot for a property. It is important to look at the big picture. Consider the appraised value of the house. Let’s say it’s $450,000 and the borrowers still owe $300,000, and you can buy the property for $275,000. $275,000 is a lot of money to pay for a house, but remember its value of $450,000. Although you pay a lot, it’s great value for money.

Short sales take time. Mortgage lenders have the final say in approving the short sale. 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 longer decision will be from the second mortgage company, since they are short. Some short sale buyers have waited up to six months for a response. If you can’t or don’t want to wait that long, apply pressure after a few weeks or months. Indicate that you are interested in the property, but are losing interest. Ask for a decision in two weeks or else withdraw your offer to buy.

The short sale agreement may fall apart. As with other real estate sales, the deal can fall apart. This is why most lenders take their time to accept an offer. They review the appraised value of the home and estimate how much they can get from a home owned by the lender or from a foreclosure auction. Borrowers also have until the final stages of closing to pay off their outstanding mortgage. So if a lender gets a better offer or the borrower gets the money, the deal can fall apart at the last minute.