Even though the real estate market has a large number of distressed debt, attaining success in distressed property investing is still possible. The key is in knowing how to navigate the process. Here are a few suggestions:
- Understand Your Customer
When selling properties, knowing the needs of your customer, as well as their likes and dislikes will weigh heavily on whether or not they are a good fit for distressed property investing. You must know their financial situation to make sure they have funds available to conduct the transaction, and for the closing.
If your buyer is in a situation where they cannot handle a wait period, distressed property investing is not the way to go.
- Check Your Paperwork
Incomplete paperwork is one of the biggest reasons why a deal takes longer than it should, or may even fall through. Carefully reviewing each document for inconsistencies and signatures can save everyone time.
- Document Your Process
All communications that take place in reference to the property should be in writing, whether you use e-mail or text. Make sure to read all remarks and review all attachments before you show a property to determine whether you have any questions.
When inquiring on an offer, always use e-mail to have a complete and detailed paper trail.
- Be Thorough
When you’re looking at distressed property investing, you must have all your documents in order. A good rule of thumb is sending your list of required documents to the seller prior to the initial or final meeting.
Making sure all your documents are in order will help alleviate lost time, and can help move the process forward. This way, you will have timely notifications of any underlying issues and can fully address them as they occur.
Advantages and Disadvantages of Distressed Property Investing
Although distressed property investing can be lucrative, understanding the advantages and disadvantages of using this method is beneficial. Here are the advantages you stand to gain with distressed property investing:
The price of the property will be well below the market value because the sellers are in debt and can’t afford to spend money in repairs or other elements that would increase the sale price.
Attaining financing for distressed debt properties can be fairly easy for investors or home buyers who are seeking these types of properties to eventually turn a profit.
- Property condition
The property may not be in the best condition, which is a chance home buyers and distressed property investors must take. This may also cause problems with the lender, as they will need to assess whether or not the property is of actual value and worth financing a loan.
You may find the property in such bad condition that it will be almost as much to repair it as if you bought one new. This is when you will need to evaluate the cost of the materials and labor needed to bring the home up to a decent enough standard for habitation or selling.
The entire process of distressed property investing can be complicated and lengthy, but is attainable with time and patience.
Understanding the rules and scenarios that may occur is key in getting through the distressed property investing process with little to no complications.
If you have the resources and know-how to rehab a distressed property, or you have access to a variety of contractors that can get the work done for a relatively low cost, distressed property investing is a great way to turn a profit.
Tips for Thought
Implementing a few tips to get the best return on your investment is key.
First, think twice about distressed property investing in a bad neighborhood. You want to find one that is in a very good neighborhood that will maximize your dollars.
Second, make sure you have a complete inspection of the home to know what you are getting into. Although a good price for one of these properties may sound good, the underlying issues may not be worth it.
Understand all the foreclosure laws that apply to your area and state to make sure the deal progresses as planned.
One of the most important things about distressed property investing is the money. You must have enough cash on hand to seal the deal.
Lenders pay attention to buyers or investors that are willing to make sizable down payments. Keep this in mind when planning to search for distressed property investments.
Be serious about the process and the offer you make. Your offer should be high enough for lenders to take an interest in backing you.
Lastly, know how to navigate the lender to work on your behalf.
It is not uncommon to negotiate the price when dealing with distressed debt.
Keep this in mind when considering the condition of the home.
If the bank will not concede, get a complete appraisal done. This can save you time, headaches and money.