Locating and buying distressed property for sale is a lucrative investment that offers high money-making opportunities. While investing in distressed properties might be tempting, investors must know all the facets of the deal to ensure profiting returns. Primarily, distressed properties result from probate sales, foreclosures, or REO properties.
As the name suggests, distressed properties are often unmaintained and damaged which requires standard renovations before being put on the market for sale. Unlike absentee owners or other property owners, the owner of distressed property is either in debt or has some financial constraint that restricts it from maintaining the property.
Hence, it becomes vital for investors to consider factors like the present property condition, location, prevailing market rates, maintenance expenditure, etc. to make a wise and profitable purchase. Not just these, tax liens are other crucial aspects that often go neglected and hamper the profit margins significantly.
What Are Distressed Properties?
Before delving into the ways to locate a distressed property for sale, it is essential to understand what defines a distressed property and what are the popular types that you can explore for investment. In simple words, a distressed property is any home, building, or land whose owner cannot keep up with the financial costs of ownership.
In most cases, these properties are marketed for sale as a result of failed mortgage payments, loan repayment, or other tax liens. Owners in such financial distress often neglect their property allowing it to fall into disrepair. Sooner or later, the owners are motivated to sell off the property as quickly as possible. Since the owners need quick money, price negotiations become easier for the investors.
A property can be put under the distressed category for multiple reasons. And investors need to know the reason and type of distressed property to formulate effective search and acquisition strategies. The most common types of distressed property that you’ll likely come across are listed as follows:
- Abandoned & Vacant properties - As the name suggests, these properties have been abandoned by their owners and vacated for a long time.
- Foreclosed or pre-foreclosed properties - These are properties that have been foreclosed or are under process due to default mortgage and loan repayments.
- Short sale properties - This is an alternative to foreclosures wherein both the property owner and the lending institution agree to sell the property in case of financial hardship.
- REO properties - These are bank-owned properties whose ownership has been transferred to the bank post the foreclosure auctions. Since vacant properties demand standard maintenance and upkeep costs, the bank aims for quick riddance from ownership.
- Probate sale properties - Properties whose owners have died without leaving a will behind can often land in the distressed category as the probate court hires an executor to sell the property at the earliest.
Ways To Locate A Distressed Property For Sale
Now that you know what defines a distressed property and the different types, it’s time to understand how to go about finding distressed properties. Establishing a measured search and acquisition strategy is imperative to make profitable investment deals.
Buying a distressed property is a lengthy process that starts with locating and identifying properties that are worth investing in. The key to a successful real estate business is investing in properties that have the potential to double their market rate in the future.
Much like absentee owners and their properties can be identified through varied listings and records, distressed properties can be located through a variety of sources such as:
- Access to the MLS - This is one of the most reliable ways to find distressed property deals that categorize properties by status such as bank-owned, short sales, etc. Getting access to the MLS (Multiple Listing Service) with the help of an agent can give you the latest property leads instantly.
- Driving for Dollars - Driving for dollars refers to an activity wherein the investor drives around the neighborhood to identify properties that look abandoned. If you are particular about properties in specific locations or neighborhoods, driving for dollars can be your way to find the best properties in distressed categories.
- Local or foreclosure auctions - Auctions are a great way to find and invest in distressed property for sale. Real estate auctions are the typical way of selling defaulting properties where a group of interested buyers is gathered to bid and take ownership instantly. However, it is important to note that buying properties through auction demands the investor to pay the property’s value in cash.
There are countless opportunities to locate and invest in distressed properties. All that a successful distressed property deal takes is the owner’s approach and ways to locate properties. One can come across multiple property leads that are in distressed condition and available at lower market prices. However, it takes experience and a good market understanding to identify properties that are worth investing in.
The above-discussed ways are common and reliable; however, it is ultimately your call to decide while considering other essential factors as well.
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