BiggerPockets

You're asking the wrong question. Nobody makes money when they buy. They make the money when they sell. Better to ask "how much are you making on a typical wholesale deal" or "how much do you make on your fix and flips?" Then ask "are short sales a good way to find a deal?"

In general, buying at only a 17% discount off "fair market value" isn't very profitable. If you're going to buy, fix and sell, transaction costs will eat 11% off the back end and 2% off the front end. Money's not free, either. And then you have to actually invest some money for repairs. You need a much bigger margin than 17% to make a profit.

OTOH, "fair market value" is what is the property worth to a buyer. Arguably, whatever price you pay on any deal IS the FMV. If you can buy a short at 83% of its current fair market value, fix it up, and raise its value enough, it might still be profitable.

Aggie,

The bigger the property price it's likely there is a bigger discount and profit. For example, using your 83% discount of FMV if a property value is $80,000 then a lender may be willing to take $66,400 for the property. Now you didn't just make $13,600 in profit because out of this you must consider your closing costs, holding costs, loan costs, realtor costs etc.

However, this same scenario on a property that's valued at $425,000 looks quite different. You could potentially purchase the property for $352,750 and take out your expenses and have a profit.

There are too many variables however, such as what you can reasonably sell the home for, and much of the time the loan that the seller has can give you some insight on how much a lender is willing to discount. If the loan has PMI that adds a layer of difficulty to the sale. Also, there are lenders that won't discount at all from the BPO price so there is no profit margin for you.

I like to shoot for $20,000-$30,000 profit but if I end up with less, I won't cry. There are times we make under $5000 profit which is a lot of work for that little money. The big picture is to get the deal done though so I'm not crying over little profit.

Hi Aggie,

Short Sales are still profitable, but again there are many variables. The discount you get largely depends on the lender holding the note. Some investors do not discount much and some will discount 20% from the bpo price. You have to take that into consideration when deciding on whether or not a house is worth your time.

As far as having the house listed...ALL the houses we purchase are listed. I never go into a short sale without a listing agent and agreement. Keep in mind when you make friends with Realtors, they can be your best referral source.

The Realtors I know LOVE when I call them and say I have a listing for them. I've heard other investors say you can do a FSBO situation, but I haven't had the need to go that route.