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2017-11-25 23:11:04
Buying Distressed Property: What You Need To Know

buying_distressed_property_200_01Distressed properties (short sales, foreclosures, REOs) are abundant these days.  They are “distressed” because many times, the home sits empty with no attention to its maintenance.  For investors, the homes become a good opportunity to invest in real estate at a lower cost than the neighborhood might dictate. 

For home buyers, foreclosures and short sales represent the chance to “move up” in their amount of home at a great price. 

I showed a foreclosure property last week.  It was a true showplace or at least it had been before the owners let it go.  I had the forethought to walk through the home before my clients arrived.  As I walked through, there were scratches on the hardwood floors and walls, wires everywhere, broken doors and other issues.  The problems were mostly cosmetic and could be fixed at a relatively inexpensive cost. 

This grand home had every amenity a true luxury home would have.  High end appliances, a wine cellar, gorgeous hardwood floors throughout the home, custom walk-in closets, a large outdoor living area, and large patios across the back of the home with the most beautiful views were just some of what I found.  Beyond all of that, though, I saw the opportunity to easily bring this once gorgeous home back to life.   

There are essential elements to consider when buying a distressed property.  These tips can help prospective buyers make sound decisions on their investments. 

Knowledge of the market: Potential buyers must have knowledge of the real estate market. Homework and research a neighborhood and market are essential to ensure that both are in a position to appreciate.  Find out where the home was priced when it sold in perfect condition.  Compare it to similar properties in the neighborhood or on the street.  Look at other homes in the neighborhood that have recently sold to see where their price fell.  This gives a comparison to make sure this is a good investment.

Location of the property:  The area in which the home is located is an important factor in the decision making process.  With the amount of foreclosures and homes with severe negative equity, many larger homes in sought after neighborhoods are in foreclosure or listed on the market as a short sale.  These homes give prospective buyers the opportunity to walk into a home with equity (provided the home has only cosmetic issues). 

Total Cost: The price of the distressed property plus the costs of repairs is probably the most important element to consider.  Most distressed properties are sold in “as is” condition.  It is imperative to make sure that the total cost of the home and the repairs is less than the total value of the home once it is in mint condition.  Underlying problems get very costly and can affect the potential profit before the deal is done. 

If you follow these guidelines when making a decision to buy a distressed property, you will probably have a good bargain on your hands that will yield a profit or appreciate in value.  Distressed property sales take time and patience but there can be a huge reward with distressed property sales if you do your homework.

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