Purchasing a distressed property can be a way to find the perfect home, fix and flip, or for rental income. Foreclosures, pre-foreclosures, and short sales are all described as distressed properties, and can often be found at prices that will give you instant equity in the home at closing. Some of these homes are ready for immediate occupancy while others may take a considerable amount of sweat equity and remodeling before anyone will be able to move in.
You may be able to get a deal on a distressed property if you use the due diligence required to buy any home and make a sound purchase. Buying disclosed property can be risky business and you need to go into it with your eyes wide open, knowing the benefits and risks of buying a foreclosure, pre-foreclosure, or short sale.
What are the different types of Distressed Properties?
The term pre-foreclosure relates to properties where the owners are more than 90 days past due on their payments and the lender has started foreclosure proceedings. Not as readily available as foreclosures and short sale,s but staying on top of the market may net you one of these homes at a price well below its market value once it goes to foreclosure.
A short sale property is being sold by its owner who does not have enough equity or funds to sell and will require approval from their lender to make a deal with a buyer. Most often, sellers in this situation owe more on the home than its current market value.
Foreclosures, also known as REO or bank-owned properties, have been through the foreclosure process, all notices have been placed, and the property was put up for auction then reverted to the lender. These properties are available for purchase to qualified buyers.
Some properties are not sold and go to auction and are sold the highest bidder. Â However, the risk of buying a home at auction is that you are not able to perform a home inspection. If you can get the home at a great price, the risk may be worth it, but proceed with caution.
What are the benefits?
Buyers who purchase distressed homes save approximately 27 percent when buying distressed properties, according to a national survey. You may be able to purchase a home and have equity at closing giving you more net worth, immediately. That is if you buy a home that does not need improvements and repairs that exceed the savings of their purchase.
What are the risks?
Do not skip the home inspection when buying a distressed home because even though you will not get the buyer to make repairs, it will give you an idea of what is wrong with the home, and how much repairs will cost. If the home is in such bad shape that the costs to remodel and repair exceed the finished value of the home and others in the neighborhood, the deal may not be such a great one, after all.
Owners of distressed homes may not have been able to keep up with normal maintenance of a home, due to their financial situation. This can lead to undone repairs that may be costly and need to be considered when purchasing a distressed home. On the other hand, some distressed properties are in perfect shape, requiring little more than a good cleaning and a little paint to make the place livable.
Should you buy a distressed property?
Whether you are looking for a home to live in or in which to invest, buying a distressed property can be more complicated than buying a home through a normal sale. Some homes go to the market at such an appealing price that more than one buyer will bid, making purchasing difficult, even with good credit.
Working with a real estate agent who specializes in distressed properties will help you find the property you are looking for because they will know when one hits the market. Alternatively, you can watch the market in your area on Movoto and find listings of foreclosures and other distressed properties.
First-time buyers will find the process of bank-owned property to be an easier path to take when buying a distressed property. You will only need to deal with the bank and not the buyers and since the property has already been through foreclosure and title issues, HOA dues, late utility charges and the other details of short sales, pre-foreclosures, and auctions are out of the way, making the buying process smoother.
Can you get a loan?
Like with any other loan, with good credit, you may be able to get a full price loan or one for more than the price if repairs are required. This option will allow you to remodel and/or repair the home before moving into or renting it. If you are buying the home as an investment, lenders offer loans with just ten percent down if you have enough capital and stellar credit. Many foreclosures have been purchased by investors who have found them to be an equitable investment.
2 Point Highlight
Purchasing a distressed property can be a way to find the perfect home, fix and flip or for rental income.
You may be able to get a deal on a distressed property if you use the due diligence required to buy any home and make a sound purchase.
