Buying a Distressed Property

Things to Know Before Buying a Distressed Property

Potential property buyers are always looking for a negotiation. Why pay the original price for a house when there is a good deal of deals available in the market? Buying a distressed property is an excellent opportunity to grab a good deal in real estate. Although distressed properties are linked with some risks, pulling the right strings can make it an excellent investment. A distressed property is a great investment if you are a real estate investor. One of the reasons is that you can acquire it at a very good bargain. Secondly, there is no competition here.

What is a distressed property?

When an owner sells their property because they could not pay the mortgage and hence own (reclaimed) by a bank, that property is called distressed property. A distressed property is usually sold quite cheaply. 

Not every distressed property is a result of payment failures. In certain cases, the lender reclaims a property to protect their investment. These kinds of measures are taken when they find a mortgage fraud. 

Kinds of distressed properties

Foreclosures: Most of the properties you will find are a result of a foreclosure. Foreclosure happens when a client fails to pay the monthly payments. A bank or a lender forecloses and reclaims the property in accordance with local laws. The lender is keen to sell these homes quickly.

REO properties: Real estate owned properties are the ones that are not sold at foreclosure auctions and hence a bank or a government body possesses the ownership. This usually happens because the property fails to reach the bid required to cover the loan.  

Advantages of buying a distressed property

The advantages of buying a distressed property are listed below:

  1. Price: Distressed properties are sold very cheap when compared to the market value. The owners who are about to be subjected to foreclosure are eager to get their debt off of them and drop the price. Hence, the cheap price of a distressed home makes it an attractive choice for investors who are not willing or cannot afford to spend a huge sum of money on a house. 
  2. Profit: As you already know, the price of real estate goes up with time. Hence, buying a distressed property is actually a good investment. A good renovation of the house will significantly increase the market price of the property. Selling after renovating and repairing can earn you a good amount of profit. You can even rent it if you don’t want to sell.
  3. Negotiation: A distressed property is most likely to be found in a state of abandonment. The house must be repaired before use. So, the buyer has the upper hand to negotiate because of the repairing and maintenance costs. A proper negotiation can give a good deal on real estate.
  4. Easy financing: Among all other benefits, purchasing a distressed home is associated with lower closing costs and interest rates which mean lower mortgage payments. 

How to find distressed properties?

Contact a real estate agent who primarily deals with these properties. A good agent will help you find a good deal and inform you about the current condition of the house and the risks associated with it. Here are some tips on how to find a distressed property:

Abandoned properties: Keeping an eye for abandoned houses is a good way to find a distressed property. One of the reasons that that house is abandoned is because the bank has foreclosed it. 

Bank auctions: Banks organize auctions to sell a distressed property that was seized because of a foreclosure. To apply for the bid, you have to submit a sealed bid with a minimum reserve amount to the bank. The bank sells the property to the highest bidder.

Pre-foreclosure sale: When the failure of payment comes under the notice of a lender or a bank, the client is given the warning to save the property from foreclosure. This is known as the grace period. During this period, many homeowners tend to sell their properties to avoid foreclosure. This is called a pre-foreclosure sale.   

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