If you are looking for a great return on investment in real estate deals, you should consider investing in distressed properties. Whether you are a beginner or an experienced real estate investor, purchasing distressed property is an excellent real estate investment strategy that can generate a high profit.
What Are Distressed Properties?
Distressed properties refer to homes whose owner is unable to keep up with mortgage payments, and thus is at risk of losing their home through foreclosure or repossession. As the name suggests, distressed homes are usually in a dilapidated state, needing repairs and renovation. They could even be homes whose construction was halted midway because the owner/ landlord ran out of financing, and, therefore, could not complete the project.
The best thing about buying distressed property is that such houses are usually sold at a price much lower than the actual property valuation. Property owners and lenders are willing to sell at very low prices to ensure that they get their money back.
How to Find Distressed Properties Online
Finding distressed properties for sale is not difficult. Here is how and where to find distressed properties:
1. Auctions
One of the best places to find distressed property listings is on auction websites. You can check auction listing sites such as Tranzon.com and Auction.com to look for distressed real estate in your area of interest. You can then place your bid on specific income properties through the site. Besides online listings, you can check your local newspapers for notices of impending foreclosures.
2. MLS
Every real estate investor needs to learn how to find distressed properties on MLS (Multiple Listing Service). However, only people with a real estate license are allowed to access the MLS. If you don’t have a license, you can still work with a real estate agent or property manager that has one. A listing that is labeled as real estate owned (REO) or short sale is usually an indication of distressed property.
You should also look out for properties that have been listed for more than 90 days. Usually, this duration will give an indication of the seller’s motivation level. If the property has been on the market for a long time, the person selling distressed property has probably become more desperate. This gives the buyer an upper hand in the negotiation process.
3. PropStream
PropStream is another online platform that investors can find beneficial for their real estate investing needs. It provides property data and lead generation, which are important in finding sellers across the US.
The platform seems to cater to real estate professionals, such as brokers and realtors, and large investors, as it focuses on searches for foreclosures and off-market properties, including distressed homes. Still, new investors can still avail of its services by starting to learn how to find distressed properties on PropStream.
Related: PropertyRadar vs PropStream: Expert Comparison & Review
4. Mashvisor Property Marketplace
The Mashvisor Property Marketplace is one of the best resources for finding and analyzing off market investment opportunities such as bank-owned homes, foreclosures, and short sales. They are, as mentioned, some of the best distressed properties to get your hands on. Mashvisor makes the search easy, efficient, and useful for real estate investors.
You can narrow down your search using filters such as budget, miles, rental strategy, and type of property (single family homes, multi family homes, condos, or apartments). You can also analyze the investment potential of properties using several metrics. A full analysis report can be generated as a pdf document at the click of a button.
Finally, contact details for property owners are readily available! It means that you can reach the property owner via email or phone and quickly start negotiating deals.
How to Find Distressed Properties: The Traditional Way
In addition to online sources for finding distressed properties for sale, you can roam around your neighborhood or drive to a nearby city to find one. Here are a few traditional methods of looking for distressed homes:
1. Drive for Dollars
Driving through the neighborhood you are targeting is an excellent strategy for finding distressed properties for sale near me. Some of the telltale signs to look out for include exterior paint that is peeling or fading, broken shutters and windows, an overgrown yard, uncollected newspapers, and notices posted on doors. When you come across distressed properties, be sure to note down the address so you can begin digging for more information.
Don’t forget to talk to people who might be able to provide some helpful information about the abandoned properties. For instance, neighbors could be very valuable sources of information about the property and the owner.
A real estate agent would also be quite happy to offer useful details since vacant homes are a liability for them. Most of their customers don’t like living next to distressed houses. Finally, look out for mail carriers that operate in your target neighborhood and ask them for information.
2. Attorneys
Quite often, homes become distressed due to legal problems. It is why attorneys can be a great source of information about distressed properties. Here are some of the attorneys you can talk to:
- Probate attorneys – People who inherit property suddenly find themselves responsible for mortgage payments, costly repairs, and back taxes. If the heir has no financial capability, the only option left is to sell the property to settle the costs. Networking with probate attorneys in your target area will give you an idea about people that want to sell their inheritance.
- Family law attorneys – Quite often, divorce is accompanied by property disputes. It means that couples filing for divorce might also be going through a foreclosure process. Striking a rapport with family law attorneys in your target neighborhood will keep you informed of properties that are in the early stages of the foreclosure process. Alternatively, you can check your local newspaper for posts of divorce filings.
Remember that during a divorce, there is probably more than just the family home at stake. The couple might have other assets such as inherited property or vacation homes that they want to sell quickly.
- Foreclosure attorneys – These attorneys work directly with banks that have foreclosed homes. In fact, bank officials usually don’t make decisions without first consulting an attorney. Make friends with a few foreclosure attorneys, and you will be the first to know about real estate investment opportunities.
3. Contractors and Builders
Contractors and builders can also be reliable sources of information on distressed properties, as they constantly work with property landlords and homeowners. Often, they are the first to know when a certain home is about to be sold, even before the owner lists it for sale. If you are able to build a good rapport with the said tradesmen, you can obtain first-hand information on distressed properties in your area.
4. Property Wholesalers
Property wholesalers act as middlemen between the sellers of properties and the buyers. The wholesalers work to find a distressed property for sale and place it for sale, charging the end buyer a higher price for the home.
Before finalizing the sale, the buyer should conduct a thorough inspection of the home to find out the amount of renovation and repair needed. It will also help determine whether the wholesaler’s asking price is justified or not. If not, the buyer can haggle for a lower amount.
How to Analyze Distressed Properties Before Investing
After finding a distressed property that fits your investment strategy, you need to determine and calculate its potential return on investment. Don’t skip the analysis part, as it will help you evaluate the overall performance of the property. If you’re not keen on doing the calculations yourself, you’re in luck as there’s Mashvisor to do everything for you.
In addition to searching and finding distressed properties through the Property Marketplace, Mashvisor also helps real estate investors analyze the income potential of such properties. The platform offers an Investment Property Calculator that can benefit both new and seasoned real estate investors. The tool calculates important metrics such as cash on cash return, cap rate, and cash flow from a property. Using the data provided by Mashvisor, investors can make an informed decision and choose the optimal investment strategy.
Use Mashvisor’s Investment Property Calculator to analyze distressed properties based on key real estate metrics.
Final Words
While a distressed sale offers distinct advantages, it also comes with its own share of pitfalls and problems. Since distressed properties are sold “as-is,” you might find yourself left with the burden of paying for a lot of repair and renovation. If the repairs required are extensive, some mortgage lenders will not even be willing to offer distressed property loans for your purchase. You should, therefore, do your due diligence before investing in a distressed property.
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