How to Find Distressed Properties: A Complete Guide

The housing market isn’t always kind to us, which is why more and more home buyers, entrepreneurs, and investors are interested in finding distressed properties. These properties sometimes need a little extra love but can offer a lot of value for the right buyer. 

Here’s a complete guide on how to find distressed properties, so you can get started finding distressed properties online, and in person.

What is a Distressed Property?

A distressed property is a property that is in poor condition, behind on payments, or in danger of foreclosure. These properties are often sold at a discount, which means that they can be a good investment for flippers and investors. Distressed homes for sale can be found online, through real estate agents, or at foreclosure auctions.

Finding distressed properties can be a great way to get a good deal on a property. However, it is important to remember that these properties often come with a lot of risks. Before making an offer on a distressed property, be sure to do your research and speak with a real estate professional to learn more about the risks involved.

Foreclosures and Short Sales

Houses that have been foreclosed on are considered distressed properties because the homeowners have been unable to keep up with their mortgage payments and the bank has taken ownership of the home. Foreclosures don’t always mean that the home isn’t taken care of, just that the previous owners had a streak of unfortunate events. These houses are typically sold as-is, which means that any repairs or updates that need to be made are the responsibility of the new homeowners.

If a homeowner is at risk of having their home foreclosed on them, they may be willing to do a short sale. A short sale is when the homeowners sell their house for less than what they owe on their mortgage. This is done in order to try to avoid going through the foreclosure process, which can be very damaging to one’s credit.

Short sales can sometimes be a good deal for the new homeowners, but they should be aware that the house is being sold as-is and that there may be some repairs that need to be made. It’s always a good idea to have a professional home inspector take a look at the property before making an offer on a short sale.

REO Properties

REO stands for “real estate owned,” which means that the property in question is owned by a bank or other financial institution. These properties are usually foreclosures that didn’t sell at auction, and now the bank is trying to sell the property on the open market. Like foreclosures, REO properties are often sold as-is, which means that the new homeowners will be responsible for any repairs or updates that need to be made. Distressed houses for sale can be a great opportunity for investors because they often sell for below market value.

The Most Common Ways to Find Distressed Properties

If you are looking to get into the business of tough-to-sell real estate, here are a few of the most common ways to find distressed properties. 

Many people find distressed properties through connections they make in the real estate world, but novices can find distressed properties online, too. So, take a look at the most common ways to find distressed properties and figure out which method is best for you.

1. Look for properties that have been on the market for a long time.

If a property has been on the market for a while, it could be a sign that the owners are desperate to sell. You can find these properties by searching online listings or by asking your real estate agent.

2. Look for properties that have been foreclosed on.

If a property has been foreclosed on, it means the owners could not keep up with their mortgage payments. These properties are usually sold at a discount, so they can be a good deal for investors. You can find foreclosed properties by searching online listings or by talking to a real estate agent.

To learn more check out this article on how to hire a real estate agent.

3. Look for properties that are in need of repairs.

If a property is in need of repairs, it could be a sign that the owners cannot afford to fix it. These properties are usually sold at a discount, so they can be a good deal for investors. You can find these properties by searching online listings or by talking to a real estate agent.

4. Look for properties that are being sold by the government.

The government sometimes sells properties that it has seized or that have been foreclosed on. These properties are usually sold at a discount, so they can be a good deal for investors. You can find these properties by searching online listings or by talking to a real estate agent.

5. Look for properties that are being sold by developers.

Developers sometimes sell properties that they cannot sell. These properties are usually sold at a discount, so they can be a good deal for investors. You can find these properties by searching online listings or by talking to a real estate agent.

6. Take to the streets.

Fancy a drive? Many investors find great deals by just driving around neighborhoods! This simple strategy can be pretty lucrative, as many homeowners with distressed properties don’t list their homes online. Keep your eyes peeled for properties with boarded-up windows, overgrown gardens, and “For Sale” signs.

Contacting the owners of these properties can be a win-win for both you and the seller. You get a great deal on a property, and they don’t have to go through the hassle of repairing it and finding a buyer. Try:

• Leaving a note or door hanger on the front door
• Sending a letter or postcard in the mail
• Calling the number on the “For Sale” sign, if one is listed
• Cold calling the owner (if you can find their contact information, but be sure to be very courteous.)

Pros and Cons of Buying Distressed Properties

Distressed properties are those that are in poor condition and/or are facing foreclosure. Buying a distressed property can be a great way to get a property at a lower price, but there are also some risks involved.

Pros:

• Prices are almost always lower for distressed properties
• There can be a more negotiating room with the seller
• Distressed properties can be a good opportunity for fix-and-flip projects

Cons:

• The condition of the property may be poor
• The property may be in foreclosure, which can be a lengthy and complicated process
• There may be liens or other claims against the property

One thing is for sure about distressed properties, they tend to require more cash on hand. This is due to multiple factors, like remodeling costs, repairs, holding costs, utility bills, property taxes, insurance, and mortgage payments. While you don’t have to have all the cash on hand upfront, you do need a plan for covering these additional costs.

As a general rule of thumb, you should have a minimum of six months of cash on hand to cover expenses.

How to Qualify Distressed Property Deals

Anyone can buy a distressed property, but not everyone will get a good deal on one. The risks sometimes outweigh the rewards, so it’s important that you know what you’re getting into before you start making offers. 

Look for motivated sellers. These are usually people who are behind on their mortgage, going through a divorce, or facing foreclosure. They’ll be more likely to accept a low offer because they just want to get rid of the property.

Research the property and the area. You don’t want to overpay for a fixer-upper or end up in a neighborhood that’s declining. Look at comparable sales in the area to get an idea of what the property is worth.

Get a good home inspector. This is someone who will look for any and all problems with the property, so you can be sure you’re not buying a money pit.

And lastly, have realistic expectations. Don’t expect to buy a property for $100,000 and sell it for $400,000 later. It doesn’t always work that way, especially with risky properties.

Conclusion

Distressed property for sale can be a good deal, but it might not be.  It is important to weigh the risks and benefits of each option.  A good deal is worth considering, but it is important to make sure that you can afford it.  It is also important to make sure that you are getting what you want.  If you are not sure, it is always best to consult with a professional.