They can give you a good idea of what repairs you can expect, as well as what those might cost. You'll still need a full inspection of the property, but this can give you a good foundation to work with before making an offer. You should also come with 1 a cash offer or 2 a good-size down payment. Most distressed properties will bring in dozens of cash offers from investors, so you'll need to be competitive. If you can't make an all-cash offer yourself, make sure you've got a preapproval letter to show your financing is a solid bet.
Finally, if you really want to strike a good deal, you might consider working with a real estate agent experienced in investment properties. They can help you negotiate, represent your best interests throughout the transaction, and even see you through to the end of the sale. Some agents may even know of a homeowner or two facing foreclosure, so having a strong network of local real estate agents at your disposal can help you find more properties, too!
If you're eyeing distressed real estate for a potential fix-and-flip, be sure to check out our other real estate investing resources. Just getting started in the business? Our beginner house-flipping tips can help. Our team of analysts agrees. These 10 real estate plays are the best ways to invest in real estate right now. Find out how you can get started with Real Estate Winners by clicking here. Aly J. Yale is a freelance writer and journalist from Houston.
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View Memberships. Search For. What exactly is a distressed property? Distressed properties generally fall into at least one of the following categories: In some stage of the foreclosure process. Bank-owned properties. Short sales. Build your knowledge about these complex mortgages before hammering the first nail. FHA loans can help borrowers with less-than-ideal credit and small down payments.
A cash-out refi lets you tap your home equity in cash. Pay a little more every month, and cut your mortgage interest by a lot.
See rates from our weekly national survey of CDs, mortgages, home equity products, auto loans and credit cards. Glossary D Distressed property Distressed property Distressed property is a money term you need to understand. What is a distressed property? Many of these types of real estate do require repairs, and sometimes need substantial work just to be livable.
While banks are sometimes willing to make some repairs to a distressed property, the majority of the cost of repairs will fall to the buyer. Also, a large number of foreclosures within a single neighborhood can reduce overall property values. Finally, obtaining financing to purchase a distressed property can be difficult, with preference generally being given to buyers who are able to make a cash offer.
Jean Marie Bauhaus has been writing about a wide range of topics since Her articles have appeared on a number of popular websites, and she is also the author of two urban fantasy novels. You can spend a lot less for a house than you might not typically be able to afford, and build equity as it increases in value. But not every dirt cheap distressed house is a great deal.
Be careful about looking for homes in extremely depressed neighborhoods. If every house on the block is going into foreclosure , or if every condo in the high rise is vacant, you should look elsewhere [source: McCrea ]. There's just no telling when the market in an area like that might bounce back -- or if it will ever bounce back.
You could end up stuck in a vacant neighborhood, watching as your cheap house gets even cheaper. In the worst-case scenario, you could end up in the same shoes as the person you bought the house from: owing more money on your mortgage than your house is worth. Any time you purchase a home, you need to have a thorough home inspection.
That inspection becomes even more important when you're considering a short sale or a foreclosure , because these types of sales are always "as-is" [source: Max]. Unlike typical home-sale situations, the seller of a distressed property won't take responsibility for damages to the home at the time of the transaction.
Instead, you as the buyer take responsibility for any necessary repairs once you sign the sale contract. Since the listing prices for distressed homes are already typically lower than comparable sales, banks usually won't give price concessions to account for any repairs [source: McQueen ]. The inspection will give you an idea of how much money you might eventually have to spend getting the house move-in ready.
You should probably consider getting specialty inspections done, also [source: Gibbs ]. Specialty inspectors will go into more detail in examining things like mold , pests and septic systems. And if an owner or lender ever refuses to allow an inspection, you should immediately walk away from the deal [source: Gengler ].
Foreclosed homeowners are often forced out of their homes, so they've been known to leave them with intentional damage. During the low point of the housing crisis that struck the United States in the late s, some homeowners who were foreclosed on stole appliances and water and lighting fixtures, both out of anger and in an attempt to make some money out of their circumstances [source: Fulmer ]. Of course, once a house is empty, it can become a target for squatters and vandals who can also do damage and leave it filthy.
And empty foreclosures are susceptible to theft; appliances, fixtures, and even copper wiring and pipes can be lucrative to thieves who have been known to tear up the walls to gain access to the copper to sell it for scrap [source: McQueen ]. All that damage can sound frightening, but if you're not afraid to sweat -- or if you hire someone to do the sweating for you -- you can save money on the more damaged, "fixer-upper" houses.
Because you will usually end up making at least some repairs to a distressed home, it's a good idea to have a contractor take a look at the house before you buy [source: Gibbs ]. That's in addition to the home inspection. The contractor should make estimates on what the repairs will cost, so you can take that cost into account when making your offer. There are all kinds of delays, frustrations and red tape that you will have to endure if you are buying a distressed property. Unlike a normal sale, where you deal primarily with the homeowner, distressed sales involve dealing directly with the lender, who has to approve the final sales agreement.
That can take a long time, since you are dealing with the bureaucracy of a large institution, not just an individual seller. It can take weeks or even months of waiting for the bank to respond to an offer [source: McQueen ]. You might be able to get help from the government to speed up the process. Check to see if the house is eligible for the home affordable foreclosure alternatives program HAFA.
If it is, you can force the bank to reply within 30 days [source: Gibbs ].
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