Buying distressed properties is not the route to profit it once was, although you may still be able get some great bargains if you know what to look for. Foreclosures are still quite common, although many are in a state of disrepair. If the owners were able to maintain their homes, they would likely have spent the money on paying their mortgage instead.
This is not true of all distressed properties, but you will generally find that real estate in good condition will be sold by the banks at comparable prices. You will not get a bargain price unless you are lucky and find a short sale. Here are some tips on buying distressed properties that are genuinely in need of repair.
Buying Distressed Properties
Use an Agent Experienced with Distressed Real Estate
It is best to work with a real estate agent experienced in distressed property and knowledgeable about short sales and foreclosures. Once you have found a distressed property you would like to buy you should be prepared to react very quickly.
Buying Distressed Properties: Get Preapproved
Make sure that you are preapproved by a lender for a loan. There is little point waiting to have your offer accepted and the find that lenders will not approve the mortgage loan you require for that property. Even if you get approval, the property can be gone before that approval comes. Banks don’t wait.
Not just that, but if you buy at auction, you must pay the purchase price immediately in some states. Others will allow you 30 days, although you will need an immediate down payment of around 5% – 10%. You may not get approval for the money needed to repair a badly distressed home, so will need another loan which you may not get.
Get an Inspection of Distressed Properties
Get any distressed property professionally inspected before you make an offer. Also arrange for a solicitor to carry out a full title search to make sure there are no liens still on the property. If so, you will likely have to pay these off yourself along with your closing costs.
Have a Renovation Budget
Get a contractor to inspect the property and provide you with a renovation cost. Add at least 10% to that because such work rarely runs to budget.
Have the Cash Available
Make sure you have enough cash for all the added costs. The down payment will likely be 10%, but you may need 20% to persuade the bank your offer is genuine and worth accepting. Then you will need the closing costs: you realtor should be able to advise on these. Finally, you will require the renovation costs. If you have to borrow for these, then make sure you have preapproval.
Be Patient but Alert
Finally, be patient. Banks are not known for overnight decisions. However, once they have come to a decision be ready to act immediately. Auctions are cleaner, but you must have a budget you will not bid above. That might be set by the loan authorized or by the subsequent down payment you can afford.
Buying distressed properties is worthwhile in that you can often get a property at a lower price than its true worth. However, be prepared for competition and make sure you have the renovation finances available. They may not be the investment gems they once were, but distressed properties may still offer some return and also make good homes.