4 Tips to invest profitably in distressed properties
Distressed real estate debt loans have been largely responsible for the recent economic downturn (2007-2009). More and more mortgage borrowers have been unable to pay back the home loan on time that has resulted into mortgage default thus forcing the lenders to restructure debt, buy back the properties or sell the home loans at current market values.
Distressed property – What it means
A distressed property is one which was originally purchased with a mortgage but the buyer has defaulted to pay back the loan on time. Usually, these properties are priced much below its intrinsic value.
Tips to invest in a distressed property
Purchasing properties with distressed real estate debt loans can possess high risk for the investors. Check out the following 4 tips to purchase foreclosed or distressed properties.
1. Take help of a professional realtor – You should take help of a professional realtor, who can identify great property deals for you. A realtor usually subscribes to updated MLS listings, so you can get access to current property information. You may search the web on your own; however, by doing so, there may be a chance of getting outdated or incorrect information.
2. Gather necessary information – Gather necessary information about the distressed property, such as, how much the seller has initially paid for buying the property. It will help you assess the present market value as the selling price may be somewhere near the original purchase price.
3. Purchase title insurance – When you buy a distressed property, you receive a special warranty deed instead of a general warranty deed. It is advisable that you purchase title insurance and take help of a real estate attorney so that he/she can look after any legal issues that may arise in future.
4. Understand sellers’ expectations – Try to make an idea why the seller is trying to sell off the property. The reason may be that the seller is facing difficulty to make the loan payments on time or he/she is trying to reduce the loss as the outstanding loan amount is more than the property value. In the first case, you should try to settle the deal quickly and in the second case, agree to pay a price that is close to the market price.
While purchasing properties that had distressed real estate debt loans, it is advisable that you study and compare the sell price of the distressed properties in the area where you’re planning to make a purchase. It will help you to make a profitable investment in a distressed property. In addition to this, look for a distressed property in a good neighborhood where the property price is expected to increase in future.
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