For you to invest in real estate, you must understand the different types of properties and how profitable they are. The poor condition of a distressed property means that it needs more money and work compared to a fixer-upper.
Most investors know that distressed properties can generate high profits. You must, however, weigh the merits against demerits to determine if it is the right type of property to invest it.
How can a distressed property benefit an investor?
A lot of investors consider purchasing distressed properties due to their low price. Banks and homeowners facing disclosure try to get rid of these real estate properties as fast as they can. Their rash to complete the sale makes them set the properties at a lower price compared to the market value.
When buying a distressed property, you get the upper hand during the negotiations. Due to the low price, you can purchase the distressed property easily, renovate it to raise the market value then sell it high to make a profit. Since real estate property appreciates over time, purchasing distressed property can earn you profits after years of appreciation.
The value of the property will soon increase. You can also turn this type of property into a rental one and earn high returns from rental income. The property may generate cash flow if you get tenants to occupy the home after renovations. Since lenders are in a hurry to sell distressed properties, you can get reasonable conditions such as low-interest rates and closing costs and when investing in it.
What are the demerits of a distressed property?
Due to the cheap cost of a distressed property, you may face competition as every buyer tries to obtain it. You have to compete with different property investors as well as home buyers to acquire it. The stiff competition can make the bank reject your offer if you are not working with a great team.
Distressed properties also come in poor shape. Some may need more work than others. You may incur a lot of costs from conduction plumbing and electrical repair. Distressed homes often have damaged walls while a few have problems with the foundation. Think about the condition of the distressed property and determine if it is worth investing in since you don’t want to waste a lot of time repairing it.
You should also consider the location of the distressed property. The location of any property determines its occupancy rates, demand and also the potential to appreciate. Most of the distressed homes are found in low-income areas. Even if you dedicate your money and time on renovating such property, it may never generate high rental income due to its location.
Once you have weighed both sides, you should implement the right strategies if you choose to invest in distressed property. Get a team of professionals that include a real estate agent as well as a home appraiser to help you plan your finances and transform the property.