Assessing The Possibilities
Distressed properties come with baggage. This could be serious or not, depending on the home. It may include property damage, unpaid HOA fees (which you’ll have to pay), taxes, second mortgages, and maybe even tax liens. Distressed properties are also rarely move-in ready.
Usually, you have to do significant repair and remodeling to them. Fortunately, companies like Same-Day Rubbish Removal make this a relatively easy job (on the rubbish-removal side of things).
If you’ve never done this before, then realize what you’re getting yourself into. You need a lot of experience and skill to do this on a large-scale, and even small renovations easily go over budget.
Since distressed homes are typically bank-owned, it can take weeks or months to get approved. The approval time gets longer when there are title issues or other questions of ownership. Sorting out these details is best handled by title experts and lawyers.
It’s Not That Easy
T.V. reality shows make it seem like flipping homes is easy. It’s not. Low prices and an improving economy means that you have to go after distressed properties. And, because of this, you often end up in a bidding war with aggressive investors. This leaves you in a tough spot, financially. In cases where an individual beats out dueling institutional investors, the price can be so much less of a deal than it otherwise would have been.
According to the Wall Street Journal, experienced foreclosure buyers usually bid higher than the asking price. This is because they know how much they can get back out of their purchase. Just because it’s distressed doesn’t make it a bargain. Sometimes, a traditional sale yields a better price with faster turnaround.
How To Buy
Don’t waste your precious time waiting on offers. Make sure you have a loan approval on your end and bid aggressively. Have a contractor look over the home first, and try to assess how much it will cost to fix it up. Sometimes, it’s not worth buying due to the extensive repairs. You need to know this before you make an offer.
Pad The Budget
You should have professionals come in and look over the home, take detailed pictures, and figure out how much it will cost to fix it up, then add a “buffer” to the budget. Experts recommend adding 10% to 20% to the estimated renovation costs.
Know How Much You Can Offer
Know what a realistic price is that fits into your budget. Looking for the deal of a lifetime isn’t going to get you the property you want if there are a lot of people going after the same property you’re going after. Understand the real estate investing world won’t always be fair. Sometimes, homes are listed at a lowball price to attract sales leads, and other have “secret” pricing that’s only known to insiders. Don’t get frustrated by this. Move on and buy something else.
Check Your Emotions At The Door
This leads to the final thing you need to be cognizant of: your emotions. Emotions are a big part of the reason many investors get taken advantage of.
Your emotions should not be playing a huge role (or any role, really) in the buying or selling of real estate. If you’re looking at these transactions as an investment transaction, your goal is to minimize the costs of buying and selling, and trying to realize the full potential of the home you’re buying.
You do not want to see a home as something you “must have.” It’s either a good investment or a bad one. And, information can change the quality of an investment rapidly. If you find out that there is an insider pricing sheet, and you’re not privy to that information, the best thing you can do is move on.
Don’t get angry. Just try to find a better deal on the next investment. If you keep running into the same problems, you need to alter your strategy. Maybe you need to network more to figure out how these other investors are getting the inside track on you.
Maybe you need to move to a different market and buy up homes where there is less competition.
- Luke Weber
- Publisher: BookBaby
- J Scott
- BiggerPockets Publishing
- Ralph R. Roberts, Joseph Kraynak
Last update on 2019-06-28 / Affiliate links / Images from Amazon Product Advertising API