It’s not uncommon for real estate investors to seek out distressed properties over new construction properties. Investing in a fixer-upper can be lucrative if you understand how to approach it, and the sale of this type of property has been making a comeback in recent years. Distressed listings can be profitable investment opportunities to purchase and later sell. Take a look at some useful tips when considering an investment in distressed real estate.
What’s a Distressed Property?
A distressed property is a home that is either in pre- or actual foreclosure or under the control of the lender. There are three types of distressed properties. A foreclosure is a property that has been repossessed by the lender who sells the property at auction to the highest bidder. Real estate-owned property is controlled by the bank if the lender can’t sell the foreclosure at auction and sold at a reduced rate on the market. A short sale means the homeowner owes more on the mortgage than the actual value of the property. Lenders agree to short sales at reduced rates to recoup some of the cost.
Finding a property that needs renovations for a reasonable price is the easy part. Undergoing remodeling projects in a timely manner while staying on budget is the challenge. The importance of home improvement projects should never be overlooked. Even the smallest renovations and updates that add value and functionality can improve the value of the property. Undergoing a simple bathroom remodel is a great way to add value and improve the condition of a distressed property.
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Finding Distressed Properties
You can use a multiple listing service to find distressed properties state-by-state, especially listings that have been on the market for more than 90 days. You can look up publicly available tax records to locate homeowners on the brink of losing their homes to the bank, either because of delinquent mortgage payments or property taxes. Real estate investors can find properties at auction across the country for reasonable prices. The best option for purchasing a distressed property and selling it at a profit is to go through real estate-owned property and bank listings.
Qualifying for traditional financing and undergoing the approval process is long and complicated. Traditional loans rely heavily on your credit score, debt-to-income ratio, and other outstanding debts to determine your borrower eligibility. Private lenders overlook these factors because they put up their capital and secure the loan with collateral. Private money loans are typically secured with real estate in the form of a lien on the property. Private lending, also known as a hard money loan or a bridge loan, is an equity-based lending solution for real estate investors. Hard money loans allow you to purchase cash-only real estate listings that aren’t financeable with a conventional loan from a traditional lender.
What is a hard money lender in real estate? A hard money lender like NWPrivateLending is a private lender that specializes in bridge loans for house flippers who want to buy and flip properties. The approval process for a hard money loan can be completed within a matter of days; however, this type of loan has a higher interest rate and shorter loan term than a traditional loan.
How To Make a Profit
Take the time to research the location of a distressed property to ensure you don’t buy something in a distressed neighborhood that will be difficult to sell later. It’s a good idea to familiarize yourself with locations that have worthwhile distressed properties. Never purchase a property without getting a proper home inspection to understand the full extent of the distress.
Keep these real estate investing tips in mind when considering the purchase of a distressed property.