Before you continue to read this webpage let me first make sure that you know exactly what distressed property is. Many people believe that distressed property for sale is property that has been seized by the bank. This is not so – although it is possible that such a property could be under threat of being seized by a bank.
Distressed property is property where the market price has been significantly reduced by its owner to below its true market value because of pressures that have been suffered by the owner.
These pressures could be a threat of foreclosure where the owner has been experiencing financial difficulties, but they could also be because of divorce, because of the settlement of an estate, the fear of possible future economic changes or separation from the rest of the family.
When a property has already been taken back into the bank’s possession, it is no longer classified as being distressed. So a distressed property is usually being sold by its owner in order to prevent foreclosure or for some other reason in order to minimize his or her possible financial loss. Buying a distressed property is usually an excellent investment, since it can be snapped up at a price well below its true market value. You can read more about investing in distressed property by subscribing to our FREE weekly newsletter – your details will never be disclosed to third parties.
When a property has already been repossessed by the lender, usually a bank, that lender will usually attempt to sell the property for an amount that is close to the amount still outstanding on the mortgage.
Banks are not interested in holding property as an investment. They almost always want to be rid of such a property as soon as possible, which is why they sell for an amount that covers the outstanding mortgage balance. This is why buying property that has already been foreclosed can often be even cheaper than buying distressed property. Of course there are always exceptions that prove the rule!
There are two main paths that you can take when buying any property as an investment:
- Buying property to flip
- Buying property to rent
Buying a property to flip means to buy with the sole object of reselling quickly and at a profit. The economic climate should always be taken into consideration when making such an investment. Whereas it is relatively easy to find such property, in an economic climate such as we have been experiencing recently you could be left in a knotty situation with a property you can’t get rid of. This is one of the reasons why, whichever road you decide upon, you choose property located in a good developing area that is close to both shops and schools. In such an economic climate many people chose to rent property rather than purchase.
You should never invest in any property without first carrying out research, and that research will usually show that investing in distressed property can often be an excellent option. There is one possible drawback that can be true for both distressed property and repossessed property. It is often the case that such a property can be run down – this is because of the possible financial state of the bondholder.
This is not always the case but it is a reason why it is imperative to be able to view the property both externally and internally before committing yourself to the investment. Some such properties could need extensive renovation before attracting tenants or flipping, and for this reason you should try to keep the purchase price to less than 65% of what you estimate the value to be after renovation is complete.