Strategies for Finding Distressed Properties
Are you looking for an advantage as a real-estate investor? Pre-owned, or “distressed,” properties are often more accessible and profitable than new builds. But they can be tricky to find. Here are some strategies to help you locate opportunities within the distressed market.
Estate Agents
The most traditional way to approach buying distressed properties is to work with estate agents. Seasoned agents working in the areas you’re interested in can offer valuable insight to the current availability of distressed properties. Local professionals should also be aware of what properties may soon come onto the market.
The distinct advantage here is the ability to use an experienced guide who can offer their insight into pricing, any particular legal issues involved and advice around buying. The downside is that agents operate to maximize the property price, so should expect a fee for their services.
Property Auctions
Buying at property auctions can be an ideal way to locate distressed properties, but it’s also the most direct way. Here buyers are bidding directly against each other, usually with larger sums of money available to hand and the benefit of an fast completion timeline.
The downside is that the bidders cannot carry out any real due diligence on the properties they are bidding to purchase. It’s important to research the market first and have a floor set for what price you are not willing to go above.
Areas in Need of Rebuilding
A more strategic approach to buying distressed properties is to identify areas which appear to be in need of investment. This could include neighbourhoods plagued by crime or regions where the economy is struggling.
Investors should arrange a full survey on any buildings they are interested in before making an offer. It is also worth reaching out to local authorities to understand any future plans for the area and to ensure they fit with your own plans.
Tax Liens and Foreclosures
A final approach to buying distressed properties is to look into markets where the owner has defaulted on payments. This could be either via tax liens or foreclosure procedures. These forms of purchase usually entitle the buyer to the property without any existing debt, which may then be sold with a small profit.
The main downside to this approach is that it is not without certain complications. Tax liens, for example, can take a long time to be processed and allow the original owner to reclaim the property before the lien has been paid.
Final Quick Tips
- Make a list of the refurbishment improvements you would make to the property and secure a rough idea of the total cost.
- Secure a loan or bank certificate to prove you have the finance available.
- Consider contingencies such as mortgages, loans and other additional fees.
- Have an exit plan for any money you make on the property once you have completed refurbishing.
Finding the right pre-owned, or “distressed,” property can open up a wealth of investment opportunities. With strategic research, ample preparation and experienced help, you can lock down your perfect distressed property in no time.