Today I wanted to talk about distressed properties and some tips on navigating the buying process.  A distressed property is simply any property that is being sold under foreclosure.  These properties are usually sold by the bank below market value as an incentive to get them off of their liability column.  While the trend of foreclosures has tracked down over the last few years, you are seeing new spikes in foreclosures.  As of January 2019, nationwide numbers are up 8% from last month but were still down 17% year over year.  This trend, however, did not affect metro areas as much and as a result, of the 220 major US metro areas, 60 of them posted year over year gains as in foreclosures as of 2019. 

What does this all mean for a distressed property buyer?

As metro areas continue to add foreclosures, the market for distressed properties grows and you will find them in some of the largest cities in America now.  With that said, there are some things to consider and be prepared for as you are trying to invest here.  The low cost usually brings competition and it is important to be on your A game as you are literally competing for space.  Here are 7 tips that can assist in finding and buying these properties.

  1. Find a bank that will pre-approve you as banks will not find your offer serious otherwise.  In addition, you are competing with other investors and they may have the cash to get a deal done.
  2. Work with an agent specializing in distressed properties as this sale can be very different from a traditional buy.  There are also special pitfalls that these agents have experienced and know how to work around.
  3. Get a full home inspection as these sales are “as-is” and may come with extensive work needed.
  4. Be ready to renovate and repair as these houses are not only “as-is”, but may include cosmetic damage from the previous owner or from theft as the property is unattended.
  5. Be prepared to wait as you are working with a bank vs a homeowner.  The bank may take weeks or months to respond and there really are many moving pieces depending on how the bank has managed the property.
  6. Know your state laws on foreclosure and if it is considered a “judicial state” or one that has some process built in to protect the original homeowner. 
  7. Use the appraisal to assist in negotiating as you may be able to take your lenders findings to lower the cost on houses that require extensive work.

Prospective buyers are always looking for great deals and a distressed property can provide that.  The whole premise here is to buy at a lower cost than normal.  The key is to understand what you are buying and why it is so low in the first place.  There is always a reason and the sooner you uncover that, the better.