Distressed properties can offer profitable investment opportunities for flipping, rehabbing and rental income. Real estate investors have a saying, “You make your money when you buy.” What this means is that you need to evaluate the property carefully in terms of location and cost to bring it to salable condition before you purchase it. Distressed properties may require only a light rehab, involving paint and flooring, a total rehab or somewhere in between. It’s crucial to understand the amount of work the property needs before making an offer. Additionally, the type of investor you are will affect the potential profitability of a specific property. For example, if you are investing for appreciation, you need to search for distressed properties in locations where property values are increasing. Distressed properties arise from a number of different circumstances. Here are the most common types and some tips on how to find distressed properties.
Can You Find Any Out of Town Owners?
Out of town property owners may have relocated for a job or family responsibilities, and the property is vacant. They may be holding the property for a rental, waiting for property values to increase, or simply haven’t had time to sell it. Quite often, the owners are paying mortgages and upkeep on two properties, and selling to an investor can offer a simple solution. The easiest way to locate out of town owners is to purchase a mailing list. You can find numerous mailing list companies online that provide lists for real estate investors.
Have You Seen For Sale by Owner Signs?
For Sale by Owner (FSBO) homes are one of the easiest to find. You can drive around the neighborhood and look for signs in the yard, search the classifieds, or look on one of the FSBO websites online. Many times these homeowners are motivated, flexible, and willing to negotiate. If you are searching for homes that you can purchase with a lease option, subject to or with owner financing, you’ll often be more successful with FSBO properties.
Did You Check MLS Listings?
Homeowners who have listed their property on the MLS for more than 90 days frequently become more motivated to sell. You can find them by simply searching the MLS for homes that have been on the market for more than 90 days. This strategy involves submitting your offers at prices substantially lower than the list prices and reselling or assigning your contract for less than the homes are listed for on the MLS. If you are unfamiliar with the process, consult an experienced real estate investor before you attempt this approach.
Have You Sought Out Probate Properties?
In many cases, property belonging to the deceased goes into probate where it is assigned to the rightful heir or the State. You can find probate listings in the legal section of the newspaper. The trustee or probate attorney will be listed in the notice along with their contact information. You can contact them by writing a tactful letter. It’s important to remember the trustee is usually a relative of the deceased, and the response you receive may depend on your approach.
Did You Ask About Pre-Foreclosures?
When a homeowner becomes delinquent on their mortgage payments, the lender will issue a foreclosure notice. Most of these homeowners are highly motivated to sell and need to do so quickly to preserve their credit. You can locate foreclosure notices in the legal section of your local newspaper. Many times the owner may have already vacated the property. You can ask the neighbors if they have an address or enlist a skip tracing company.
Do You Know About REOs?
REOS are properties that have already been foreclosed and are owned by the bank. These properties are vacant and listed on the MLS or retained in “shadow inventory” until they are listed. You can find REOS before they are listed by driving around the neighborhood and looking for vacant homes with the bank’s paperwork attached to the door or window. The listing agent or asset manager and their contact information can be found on the paperwork.
Have You Looked Into HUD Properties?
HUD (US Department of Housing and Urban Development) homes are those the agency acquired as a result of foreclosure on FHA insured mortgages. HUD lists all of these homes on their website. Fannie Mae and Freddie Mac each have their own website where foreclosed properties are listed as well.
Do You Know Anyone Who Went Through Bankruptcies/Divorce?
Many homeowners who have filed for bankruptcy or divorce are motivated sellers. Most will be in the process of liquidating their assets and won’t have time to list and sell their home by traditional means. Bankruptcy and divorce notices are published in the legal section of your local newspaper. The best way to contact these prospects is to send a hand written letter.
Are You In Touch With Any Tired Landlords?
Existing landlords can be an outstanding source of distressed properties. It isn’t uncommon for inexperienced investors to purchase rental properties unaware of all the responsibilities involved and want to unload the burden. Landlords who are reaching retirement age may want to sell and get out of the business. You can often purchase these properties as is with little negotiations, since you are dealing with experienced investors who understand the costs of upgrading the property. In some cases, you may have the benefit of having a tenant already in place. You can find landlords by searching classified ads for rental properties, joining your local real estate investor group or you can purchase a mailing list.
2 Point Highlight
What this means is that you need to evaluate the property carefully in terms of location and cost to bring it to saleable condition before you purchase it.
It’s crucial to understand the amount of work the property needs before making an offer. Additionally, the type of investor you are will affect the potential profitability of a specific property.
