The Benefits of Buying Distressed Property
The Great Recession of the late 2000s led to a large number of distressed properties for sale. While the volume has gone down with the steady recovery of the housing market, many are still available for purchase. And given the dynamics of real estate, there will always be a distressed home for sale somewhere, regardless of the economy’s state. Talk about a silver lining.
Buying a distressed home certainly comes with a few risks, the most notable of which is the amount of work and money that may be needed to make it move-in ready.
In the hands of the right buyer, however, these properties offer great opportunities for profit, with benefits that you can’t get from a regular real estate transaction.
Many distressed homes come at a much lower price than regular properties for sale, often below market value. It may also be easier to negotiate aa price down with sellers – whether homeowners or banks – as they are usually eager to have the property taken off their hands.
Low interest rates
Fixed-mortgage interest rates are still at their lowest, historically. With the low mortgage for a distressed home and a low interest rate, your savings can build up over the years as your equity increases.
High profit potential
With the recent real estate market rebound, home prices have also seen an impressive increase. In major metropolitan areas such as Atlanta, home prices are seen to continue rising over the next few years. With the right repairs and maintenance, a distressed home bought at a steal today could be worth much more than its purchase value in a few years.
Owning a distressed home offers great investment opportunities. As discussed above, you can “flip” it, that is, renovate it to move-in-ready condition then sell it for a profit.
You can also rent it out. Rentals have become more in-demand lately, partly because lenders have become more stringent with home loan requirements.
The low purchase costs of distressed homes make them more viable for a secondary or rental property investment.
What to watch out for
Despite the financial benefits you can get from buying a distressed property, you cannot disregard the warnings. Here are some considerations you must not overlook:
- Make sure you know how much is involved in fixing up or renovating a distressed property. Have a general contractor look it over and give you an accurate assessment, so there are no surprise expenses later on. Your real estate agent can refer you to a contractor if you don’t know one personally. Remember to keep costs within your budget.
- Buy only into an area with growth potential. If most homes in a location are distressed, it might take a longer time for that market to recover.
- Make sure you have the right financing. Getting a mortgage for a distressed property may be more complicated as not all lenders offer it.
- Look into the property’s paperwork. It’s not unusual for one to have a double mortgage, so tracing its ownership could be complicated.
Make sure that you are aware of any lien attached to a property before purchasing it. Your real estate agent can provide valuable assistance in this matter.