Tips for Investing in Distressed Properties
Buyers of distressed properties are saving thousands of dollars on homes and building purchases. But, distressed property acquisition is not without it’s challenges. It is a buyer beware type of market since these properties are typically sold “as is” and the purchaser needs to do their homework ahead of time. Here are some tips for investing in distressed properties.
- A starting point is to search the Internet for distressed, foreclosed, tax-lien, or probate properties. Since many distressed properties are not listed in the standard realtor multiple listing service (MLS) and information on the web can be outdated, you may want to consider subscribing to a service that offers up to date REO and BPO listings and purchasing sample contract forms.
- When purchasing distressed properties, time is of the essence. Purchasers must close on the date specified by the lender or possibly pay penalties for any delays. This means that potential buyers must do all their homework and paperwork in the most efficient manner.
You might want to look at a complete real estate system product. Creative Real Estate is currently offering a 40 minute introductory audio on real estate investing and strategies to help systematize the investment process. - Have your financing in order before approaching a potential seller. If you are paying in cash, make sure the funds are liquid and available. If you need a loan, make certain that you are prequalified. Joe Crump is currently offering five free suggestions for purchasing with zero down and no credit checks. Joe built his business by investing in small $1000 chunk flip deals until he was able to acquire larger properties that now provide him with a full time income.
- When purchasing distressed properties, repair cost and required maintenance can quickly make a bargain property turn into a money sink. A potential buyer should always get the property inspected and get estimates from multiple different contractors. If you are looking to buy distressed or fixer upper property at a discount to fair market value, then it should be expected that there are outstanding repair cost. The investors proper estimate of these repair cost is often times the difference between successfully flipping a property and losing money.
- The property title you receive after purchasing a distressed property is a special warranty deed, rather than a general warranty deed. The purchase of title insurance protects the buyer from potential unknowns and previously outstanding claims against the property after it is acquired.You may want to consider using an attorney, instead of a title company, as your closing agent. Attorneys will cost a little more but they can remedy any situation that may arise during the closing process. While this is a more expensive approach, due to the strict time requirements in buying distressed properties, it may be a more efficient representation that will keep you from paying late penalties on the closing.
- Distressed properties may require special addendums and contracts from either the lender or HUD office. The requirement for the extra paper work is very property specific so it is wise to ask the seller early in the process about their requirements.
- Keep accurate records of the initial cost of the property, all repair costs, payments on preexisting liens, and current taxes. Any expense related to the purchase, repair, and maintenance of the property can increase your taxable cost basis that will reduce any taxes after the property is sold. Carefully maintained records may be the difference between a profit and loss on a real estate venture.
Investing in distressed properties can be very rewarding and profitable. It is not for everyone. It will require extra upfront searching to find the property, knowledge of the buying process, and potentially extra paperwork, but it can be a very lucrative investment.
