If you are shopping for a home or getting into the real estate investing game, then you are likely to hear the term “distressed property” from time to time. If what you are looking for is a well-maintained home with no major problems or defects, the word “distressed” might give you pause. However, shopping for and buying distressed properties can be good business if you know how to do it right.
Simply put, a distressed property is a property that the owner can no longer care for or maintain. In some cases, the owner might be struggling to keep the home in excellent condition. In other cases, the owner might be behind on mortgage payments and nearing foreclosure. In any case, distressed properties usually need to sell fast.
That point brings us to the other question posed by the title of this article: should you buy a distressed property?
There are pros and cons to buying distressed houses. The biggest advantage is that these homes typically sell considerably below market value. When the seller needs to divest of their home quickly, they usually want a no-fuss sale. Said another way, they don’t want to go through the lengthy process of doing repairs and upkeep, worrying about curb appeal, staging the interior of the house, or negotiating over price. As a result, you can often buy distressed houses for real bargain prices.
On the other hand, buying a distressed property usually means agreeing to do some improvement work. In most cases, part of the reason you get a bargain price is that the seller hasn’t done much to maintain the property. A distressed home might have a yard overgrown with weeds, a roof that needs replacement, peeling paint, ratty old carpets, outdated appliances, and more. In other words, while you will save money on the purchase price, you will probably have to spend at least some of it getting the house back into decent shape.
Of course, not all distressed properties are falling apart. Homes reeling toward foreclosure can sometimes be in decent condition. The problem with these distressed properties is that they are more difficult to spot. In most cases, distressed properties are not listed on the real estate market, at least not yet. If you are interested in buying distressed houses, you will need to find them yourself.
For instance, say there is a home on your block where an elderly homeowner has lived for years. The house has started falling into disrepair because the owner can no longer maintain it. The owner’s family ultimately steps in an insists they move into an assisted living community. The family wants to sell the house but assumes that no one will want to buy it until they have taken care of some of the deferred maintenance. As such, the home remains unlisted. Owners facing foreclosure will also often leave their homes unlisted, even if they are interested in selling.
To buy a distressed property, you will typically need to reach out to homeowners to express your interest in purchasing their homes. This process can be uncomfortable since you will usually need to make these offers without any solicitation. However, if you have reason to believe that an owner is struggling with the financial or upkeep responsibilities of a property (or both), making an unsolicited offer might do wonders. An owner of a distressed property might jump at the opportunity to sell their home to an interested buyer directly.
So where do you start? Look for distressed properties as you walk or drive through neighborhoods in your area. Look for homes that have apparent signs of deferred maintenance or neglect. A property that stands out from others on the block because it obviously poorly cared for likely qualifies as “distressed.”
At Twinley Homes, we buy, rehabilitate, and sell distressed properties in the San Francisco Bay Area, among other regions. We have seen considerable success from using this model of real estate investing. We have also worked with independent buyers and investors who have had successes of their own with distressed properties. Of course, if you would rather buy rehabilitated homes, we can give you a tour of our Bay Area real estate offerings.
Either way, if you have any questions, don’t hesitate to contact us or call us at 408-909-TWIN.