Should You Invest in Distressed Properties?

Whether you are just starting your real estate investing journey or have been investing for a while, there is no doubt that distressed properties can be an excellent source of income and capital appreciation. Nonetheless, several questions remain: Is it worth my time to invest in distressed properties, how do I find distressed properties effectively and how do I invest in distressed properties the right way?

If you’ve never bought a distressed property you might wonder if it is a smart decision. Well, here’s the truth: yes, it can make sense with the right strategy in place Here’s what real estate Investors need to know.

What Is A Distressed Property?

Distressed properties are those that have been foreclosed on or are otherwise in a state of financial or material distress. The term “distress” describes the conditions of assets that have lost value due to an economic downturn. In other words, distressed properties are generally undergoing foreclosures, bankruptcies, or short sales.

While this might sound like it’s the perfect opportunity to get a fixer-upper for below market rate, it’s important to consider how much work would need to go into the property and if any financial restrictions exist that could add costs to the purchase. 

Should You Invest in Distressed Properties?

If you’re looking to buy a property below the market price with a high reselling value, buying a distressed property can be a good strategy to add to your arsenal.  However, if you’re looking for an investment property that will give you instant cash flow, or will not require any repairs, then choosing a different type of investment may be a better route.

In many cases, a distressed property can sell relatively quickly, so expect plenty of buyer rivalry when trying to find one. If you find a property that seems like a good fit for your goals, be prepared to move quickly to close the sale.

There are many different types of distressed properties, ranging from short sales to foreclosures to REOs, also known as real estate owned. Each type has its pros and cons, so Investors should research which type of distressed property is right for them.

How Can Real Estate Investors Profit from Distressed Properties?

Distressed real estate investing can be a lucrative investment model with the right approach. As long as you follow some best practices, you can profit from your investment while reducing the risk to your long-term income.

• Research the location: Even if a distressed property appears to be an amazing deal, it can be located in a neighborhood with high crime, lack of local amenities, or in a generally depressed market that could hurt your chances of reselling a property at a high value. Reviewing city and neighborhood data from sites like Niche.com.
• Hire an appraiser: Remember that real estate Investors need an appraiser to give different insight into what the seller’s inspection says and the value of a property. The seller’s inspection may overlook structural damage, cosmetic issues, or other critical and costly issues.
• Be ready for repairs: Some distressed property owners have been known to leave properties with intentional or unintentional damage or neglect. You’ll have to make repairs before selling the property. Make sure you have a budget earmarked for it and take into account all costs involved.

Distressed properties are often overlooked as an option when it comes to real estate investing. However, if you look closely, you might find that many of these homes have potential as good investment properties. They may require some work before they become profitable, but once they do, they can provide a steady stream of income for years to come. 

How Can Real Estate Investors Find Distressed Properties?

Finding a distressed property is easy. However, finding the right distressed homes that make good investments can be challenging. To find these properties and evaluate them for potential success, a real estate investor should: 

• Look for properties in bad condition
• Examine tax records
• Look for properties that have delinquent mortgage payments
• Consider buying REO and Bank-Owned property listings
• Search Privy’s off-market filters