Distressed Property is both an opportunity and a challenge to navigate the distressed property world. If you’re an investor seeking deals or a homeowner hoping to avoid foreclosure, understanding distressed properties is crucial. This article covers everything you need to know about distressed properties, including what they are and how to find them. You’ll also learn the pros and cons of buying or selling these types of homes, ensuring you’re prepared for any challenges.
What is a Distressed Property?
A distressed property is a house entering or already in foreclosure because the owner is unable to pay the required mortgage payments. Other reasons for financial distress include unpaid property taxes, or uncontrollable legal judgments. Often, the owner or lender wants the property sold quickly and as a result these properties are often sold below market value.
Distressed properties can include:
- Foreclosed homes: Lender controlled properties taken after the homeowner defaults on their mortgage.
- Pre-foreclosure homes: Properties where an owner may still be able to sell before losing the home in early stages of foreclosure.
- Short sales: The homes were sold for less than the interest owed on the mortgage, with the lender’s approval.
How to Identify Distressed Properties
It may sound difficult, but finding a distressed property isn’t. Here are some common ways buyers and investors can locate them:
- Real estate listings: Lifecycle information showing when the home was put into foreclosure or, more likely, in the short sale, is listed in many multiple listing services (MLS).
- Auction sites: Homes distressed enough to be foreclosed on may be sold at public auctions.
- County records: Many pre foreclosure homes show up in public records before they become a part of the real estate market.
- Real estate agents: Buyers need to work with agents with experience in distressed property sales to help narrow down real opportunities.
Buying distressed property is like any real estate investment and has its pros and its cons. Here’s a look at the pros and cons:
Pros
- Lower price: The biggest pro is you can frequently buy them for less than market value, saving you cash.
- Investment potential: Distressed properties can be great investments with some renovations whether you rent or flip the home.
- Motivated sellers: That, in turn, can result in quicker negotiations, cemented by the fact that sellers, especially lenders, can be motivated to close quickly.
Cons
- Repair costs: So many of these distressed properties are in such poor condition and need so much work. You need to have the necessary budget to bring the home to standard as well.
- Unseen risks: Sale of distressed properties may involve liens, unpaid taxes or legal issues that make it difficult sale.
- Competitive market: Multiple buyers can be lured with a lower price tag, and the competition for the space is fierce.
Selling a Distressed Property: What You Need to Know
If you’re a homeowner in financial distress, selling your home before you reach foreclosure can make good sense.
Here’s what you need to know if you’re selling a distressed home:
- Price competitively: Price the home so it sells quickly. If you’re new to all of this and working with a distressed property, a great real estate agent can help set a fair price.
- Consider a short sale: A short sale is something you should discuss with your lender if your home is worth less than what you owe on the mortgage. Preventing foreclosure has less impact on your credit score.
- Prepare for buyers: Because of its condition, distressed properties are harder to sell, but buyers may be willing to look past repairs when it is priced right.
Which Distressed Property is Right for You?
Distressed properties are great for bargain hunters and for investors. But there’s a risk involved, too. Key here is due diligence—research the property’s past, run a home inspection, and take a look at what repairs might cost before making an offer.
One of our biggest worries as homeowners is that we may not be able to keep our home, but if you’re a homeowner with a challenging finances, you don’t need to give up on home ownership. Working with a real estate professional could help you examine your options, as you would avoid the long term implications of foreclosure.
Final Thoughts
Properties distressed in real estate are a unique opportunity. Whether you’re buying or selling, it’s important to know the details about distressed homes to make an informed decision. While these properties are often more affordable, it’s essential not to overlook the potential risks involved. However, distressed properties can be a great part of any real estate strategy when one prepares properly. Visit Gold Homes LLC for more blogs, expert insights, and guidance.