Investing in distressed property

Many real estate investors would not consider putting their money in distressed property. Few are willing to spend  considerable amounts of money on inspection costs, legal research fees, renovations, property taxes and other costs associated with foreclosed

property. But the ultimate benefit from this investment, according to experts, is worth it.

Distressed properties can present a good opportunity to snap up dream homes at below prevailing market prices.

In an interview with CNBC, billionaire Warren Buffet said there is leverage in owning distressed single-family homes, which can then be rented out, but cautioned that this must be done with utmost care.

“If I had a way of buying a couple hundred thousand single-family homes, I would load up on them and I would take mortgages out at very, very low rates,” he told CNBC.

Homes become distressed if they are at risk of foreclosure due to non-payment of mortgage or taxes. Other financial and legal situations such as personal debts, construction loan liens and estate settlements can also result in distress sale of property.

The main thing that attracts investors to these kinds of property is their price. They are usually priced below market value because the lender wants to get rid of the property quickly in order to redeem its loan amount following the borrower-owner’s

defaulting. Subsequently, lenders rarely ever care about fixing up the property. In any case, their desire is to bid for the property at an amount at least equal to the mortgage balance owed them.

Banks usually maintain real-estate owned (REO) lists containing information on properties they have acquired through foreclosure and auction as they are legally allowed to acquire titles to property directly from the defaulter. Go-getting potential house buyers

have their sights trained on these lists for the best deals. Notices placed on commercial foreclosures also help buyers find target properties without much speculation.

That most foreclosures and short sales are more often marketed “as is” means there are few competing buyers, allowing one ample time to sample the various offers available.

DEDICATING TIME AND RESOURCES

But, correspondingly, it means that the buyer must be ready to dedicate his time and resources to renovate on the property before selling it or renting it out. The amount of resources to be spent on the same depends on the current condition of the home.

The worse the condition of a property, the more costly the process of sprucing it up.

A realtor would prove useful once you have identified a  home you want to purchase. He or she will provide you with the information regarding why the seller wants to sell the property. Perhaps they may want to avoid a foreclosure or are unable to maintain

the home.

Carrying out research on the property can be not just tiresome and expensive, but also time consuming. That’s why realtors are there to make the process less stressful and ensure both the buyer and seller are brought together in an agreement that provides

each with a “win” that is fair and equitable. In return for a sales commission, realtors provide a host of other services ranging from tracking the buyer’s loan history, home inspection, seeing to the listing of the property for previously unlisted property,

appraisal and transfer of title to the buyer.

But investing in distressed property also presents a number of challenges. First, there is no guarantee that the investor can secure a loan for the same. The lender might require the property to attain some minimum standards before giving the loan.

Another challenge is that the new home owner might find that the house is still occupied making him experience delays. The buyer might also chance upon an exclusive home but which is not located in his choice place.

The long and short of it is that one can invest and profit from distressed property as long as they know what they are doing. The current housing shortage and the rising cost of construction

should push developers into the foreclosed housing market.