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With foreclosures on the rise, negotiating short sales is a prime investment strategy you as a savvy real estate investor must master. In order to do so, you need to understand the state of short sales today.

Loose lending practices by the banks over the last several years allowed people to buy houses with no money down or to borrow more than their homes were worth. Now these same people can't afford to pay their mortgages. Consequently, the banks are inundated with foreclosures.

Yet they continue to make bad loans. Meaning that the number of foreclosures is only destined to keep growing.

Ironically, the increase in foreclosures is making the banks more difficult to deal with. Since they have so many foreclosures on their hands, they believe they will make more money buying back the houses and reselling them as opposed to taking a discount on a short sale.

Not necessarily true. For several reasons.

First, the foreclosed houses become vacant. With no one living there to run the air conditioner or heat, the house becomes defenseless against the natural deterioration process. So while the bank maintains the selling price, the value of the house decreases as the need for repairs increases.

Next, homeowners don't want to buy houses that need extensive repairs. So foreclosed houses that the bank did not invest time, effort and money to repair do not appeal to those looking to purchase a home. These buyers want to move into a livable house, not one that will require more fixing up than a new coat of paint on the walls requires.

Finally, the location of the property could keep potential buyers away. If, for instance, a murder occurred on the same street as a foreclosed house, the value of the property diminishes in direct proportion to the increased danger of living in that section of town. But if the bank holds on to the property intending to make a profit, all that property becomes is an outstanding bad debt for the bank.

It is thus your job as the investor to understand the state of short sales today. When you do, negotiating with the banks for deep discounts becomes easier. And gets you more properties at lower prices.