Buying Distressed Properties
Buying a distressed property can often be done at below market prices making them attractive to buyers. Foreclosed or short sale properties will typically be priced below market value because sellers are in a hurry and may not have funds or are not willing to spend the money that is needed in order to repair a run down property. While mortgage rates are low, real estate investors may be able to take advantage of less expensive financing to purchase a property at a lower price and then sell it later for a profit. There are other advantages as well as disadvantages when purchasing distressed properties and both should be considered carefully prior to investing in a distressed property situation.
For first time buyers the disadvantage to buying distressed properties is often the condition. If you are purchasing a home in poor condition, you need to make sure you have the necessary funds in order to hire contractors, purchase supplies for the improvements and complete the repairs to make the property ready for resale or occupancy. A few foreclosed properties are in decent condition, but many will have extensive damage, not have appliances, and will require significant repairs to the mechanical systems. Home inspections may or may not be available for distressed property purchases. Even if you do have a home inspection, it is up to the buyer to finance any necessary repairs.
Also, it is important to note that not all distressed properties will meet lender requirements due to the condition of the property. An appraisal is needed to obtain financing and the lender will need to determine whether a property can be lived in and has value that is worth the risk of financing.
For buyers who have experience in fixing up homes, purchasing a distressed property that is in bad condition may in fact be a great deal. Many distressed property purchases are in such poor condition that buyers should be aware that some deals will require cash. Other properties that can be financed, may have potential competition from a cash buyer. If you do not have cash yourself, you may want to secure a strong lender loan pre-approval and increase the size of your down payment in order to be a strong bidder.
The purchase of any home is a big decision. Whether you are a novice buyer or an experienced investor, buying distressed property can be exciting but brings added responsibilities. The purchase of a distressed property may result in a lucrative return on investment and any investor should expect to put in time doing their due diligence. As with any investment, education and knowledge is the most important first step.
If you are interested in purchasing distressed properties and would like to be added to my Distressed Properties Alert List please fill out the contact form.