Short Sale Profits Potential

[Ayo F.]

Hello All,

Please I would like to know how much an investor can realistically expect to make on a Short Sale. How much are you guys averaging on your shorts? I have heard that banks are only discounting to about 83% of FMV. I have also heard that it is wise NOT to buy any property that has less than 30 - 35 % equity esp in this declining market.
Therefore, does it make sense to buy a short that is only discounted by 17% ?

Thank you!

[Jon Holdman]

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.