The Good and Bad Sides of Buying a Distressed Property

In densely populated areas or markets with a lot of competition, would-be home buyers often add distressed properties to their searches to help expand their housing options. Distressed properties can be a great value and investment, but it’s important to understand what you’re in for if you go this route.

Let’s start off by examining what a distressed property is. A distressed property is any property that is under foreclosure or being sold by the lender. Normally, a distressed property is a result of a homeowner who was unable to keep up with the mortgage payments and/or tax bill on the property. These types of homes can be listed under market value, however, in areas with a lot of competition, distressed properties will more likely be listed at fair market value.

The pros: There are two primary reasons for purchasing a distressed property.

  • Price
    The below market value price on a distressed home allows those who might not otherwise be able to afford a particular neighborhood to buy there.
  • Profit Potential
    If you buy a distressed property at a good price and know which repairs and updates will add the most value, it is possible to build equity and sell at a profit.

The pitfalls:  It may be tempting for a first-time buyer or investor to purchase a distressed property without fully considering the ramifications. As great a deal as it might seem, there are some things you need to look out for.

  • You have to compromise on location
    Not all, but many distressed properties are located in low-income neighborhoods. Buying in such a neighborhood severely limits how much you can invest in upgrades, without making your home too valuable for the area.
  • You are not sure you can make repairs
    It’s fairly common for distressed properties to be in less-than-pristine condition and need a number of repairs, immediately and in the near future. If you are not certain that you can make the repairs yourself or have it done at a price you can afford, that is a red flag you’ll want to look out for.

Every distressed property buying experience is unique, so even though there can be disadvantages to buying this type of property, there can be some great upsides as well. The first thing you’ll want to do is find a real estate agent who’s experienced with these types of sales – they’ll be able to walk you through the process and answer your questions along the way. Metrowest specializes in distressed property transactions – contact one of our experienced pros today and learn more about the process!

 

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