If you have ever watched one of the property-flipping shows on television, you already have a sense that the purchase of a distressed property can be a great investment. You probably also know that the process can be a rollercoaster of unexpected costs, conflicts with city by-law officers, and labor issues with contractors. It is definitely not for everyone, but if you have the right attitude and are prepared with expert advice by industry experts like Welfont Reviews, you can get excellent returns on your investment. Here are a few things to keep in mind when you are thinking about buying a distressed property.
The purchase of a distressed property can be a time-consuming process which may involve a considerable amount of paperwork – especially if the property is in foreclosure – and may also involve legal actions if the current owner or tenant does not leave the property in a timely way. If there is an expectation of quickly “flipping” a property, care must be taken to evaluate market conditions to ensure that a property does not sit unrented or unsold for a longer-than-expected period of time. If the intention is to live in the property these timelines become less urgent, but buyer should definitely be aware that it could take a number of years before an investment can be recouped.
Investment of time
In addition to taking time to actually complete the transaction, it is likely that the new owner of a distressed property will also need to invest a good deal of time into the property itself. Whether the intention is to live in the property, to flip it or to rent it, work will be required to make the property ready. While some distressed properties are being sold by owners with urgent financial needs and are in good condition, many more will be sold “as-is” after years of neglect and may be close to derelict. This is, of course, exactly why they are being sold at such good prices. Renovations will take time to complete, but they will also take time to plan, to organize and oversee. Things will invariably go wrong, will be delayed, and will require the attention and energy of the new owner to right.
Cash vs Financing
While interest rates are low, distressed properties may be even more attractive. However, it is important to understand that these properties, especially if they are in poor condition, may not meet the criteria for many lenders, making it difficult to secure a mortgage to purchase a distressed property. If you are planning to hold onto the property for a number of years, you will want to take account of the potential for interest rates to rise before the market improves enough for you to recover your investment if you plan to sell the property. For these reasons, distressed properties may be especially attractive to buyers who are able to make cash offers.
There are many reasons to consider purchasing a distressed property – be sure to do your research and to think carefully about your short vs long-term plans so that you can be sure this is the right option for you.