Buy Distressed Properties
By Pierre Mouchette | Bits-n-Pieces
What Is a Distressed Property?
To better understand distressed properties, it is best to look at how the property got to the state of foreclosure.
All parties try to cut their losses with these kinds of houses. If you consider the actual cost of selling something for a reasonable price, lenders want to make sure they do not have to invest a ridiculous amount of money or time trying to get that extra dollar. That means low prices. They want to cut losses and get back some of their money. It also means that these properties usually need work. Most likely, the previous owner could not maintain the property because they were short on funds. Unfortunately, some of these properties look awful and need a lot of work.
Why Invest in Foreclosed Real Estate?
For many, the way these properties look makes them unattractive. But surface problems are only superficial issues and are not difficult to handle. It makes more sense to buy distressed properties than to buy or build a new one. With the purchase of a foreclosure, your focus is on your ability to get a good bargain and maximize your investment returns.
Low Asking Price
Due to the nature of distressed properties, getting a house way below market value is relatively easy. You can easily buy distressed properties at 10 to 20 percent off the retail price or one-third of the cost of building a new property.
Why? Because you have the power! It is because homeowners are usually in a position where they want to sell and sell fast, placing you in a better bargaining position to get your offer accepted. Still, it requires skill to get a reasonable price, even under these circumstances.
Distressed properties create opportunities for real estate investors to make a profit. Whether you decide to buy the property to rent or sell because the prices are below market value, your margins are much better when working with distressed properties. That also means that you are taking on less risk.
The law of home equity states that as the value of your property grows, your equity increases. With the purchase of distressed properties, you are instantly in a position to get tremendous financial gain because you have bought a house for a value lower than its market value. Your net worth will increase considerably after you have renovated the property.
Fewer Approval Delays
When building new properties, you are exposed to outside influences that cause delays and usually lower your margins. These situations can make a bad situation worse. It can also force you to make decisions that seriously affect your bottom line. But with distressed property, you do not have to deal with delay after delay. Sure, you will have someone renovate the property. But, the complexity of getting an entire home built is far greater than doing some renovations. It significantly impacts the timelines you are working with, so you will make more money faster with distressed homes.
How Do I Go About Getting a Distressed Property?
The bank or other financial institutions are the best places to look for distressed properties. Usually, they do not have the time to advertise and seek out real estate agents or companies to market their properties. You can also look at foreclosed properties from government-owned institutions, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs, or the Internal Revenue Services Department (IRS), to name a few. Usually, these institutions will advertise their properties in the newspapers.
Another source is to Google for properties in your area that are on auction or up for foreclosure. You can look for online public records at the county courthouse, which records and stores real estate transactions for a property in that county.