Last Updated on Nov 18, 2021 by James W
If you’re into real estate investment, it’s likely that you’ve heard of distressed properties. These types of homes are either under foreclosure, pre-foreclosure, or controlled by the bank. As such, property investors can purchase these distressed homes for a discounted price and then resell them on the market.
While this type of property investment can be lucrative, it’s worth knowing what’s involved and the potential risks.
How Can I Find Distressed Properties?
There are multiple options for buying distressed properties. These include:
Multiple Listing Services (MLS)
MLS is a comprehensive research tool that monitors the status of various properties on a state-by-state basis. Keep an eye out for properties that have been listed for more than 90 days, as it implies the seller is motivated to sell.
You may be surprised to learn that tax records are public information. These can be used to guide your search for homeowners who may be facing foreclosures.
Auctions are another useful place to find distressed properties as they are often sold to investors via these platforms. Before you bid, be sure to check whether inspections are permitted and what the foreclosure status is.
Another way to find distressed homes is to look for bank-owned homes. These often sell for a much lower rate, and they usually allow inspections.
While somewhat depressing, check probate courts as events such as death, divorce, and bankruptcy can involve liquidating probate assets.
At the end of the day, nothing beats good old-fashioned research. Whether you search online or do some asking around, you can sometimes find deals on distressed properties via individual research.
Can I Borrow Money to Invest in a Distressed Home?
Procuring finance to invest in a distressed home can be a challenge. However, some lenders will issue hard money loans so that you can refinance your distressed project. If you go this route, be aware that it can be difficult for appraisers to accurately assess the value of the home before it’s been renovated. However, securing funds from a lender can help you with the cost of renovations before you resell.
How Do You Make Profit?
One of the biggest benefits of investing in a distressed home is that you can usually make a good profit. Because the prices are below market value, there’s room for a larger profit margin.
Distressed properties also involve less risk due to the lower costs of purchasing and renovating, which means you’ll have more freedom and room to grow. As your property’s value grows, so will your equity, which means that you are in a good position to make strong financial gains.
Why Buying a Distressed Property is Worth It
If you’re in a good financial position to purchase a distressed property, it can be a worthwhile investment. Not only are you reaping the rewards of purchasing a home at a significant discount, but you also stand a good chance at building equity once you’ve completed your renovations. While there are contingencies that can happen when purchasing a distressed home, the financial rewards can be worth the risk.