How to Find Distressed Properties
To guarantee a profit, real estate investors aim to find bargain homes that they can buy below market value. While this may be a feat when you look among standard sales, a whole world of opportunity opens up if you look for distressed properties.
This short guide offers a basic introduction to finding these discounted homes that can be great for real estate investing or to turn into a forever home.
What are Distressed Homes?
Distressed homes are residential properties that are priced below market value. They are discounted because they are either in poor condition or their sellers need to move quickly, mainly due to financial reasons. You may find these investment opportunities in a variety of forms:
Foreclosed Homes
When a borrower has defaulted on payments and loses their house, the mortgage lender takes the foreclosed property back and tries to sell it at an auction to pay off the rest of the mortgage. Buying a foreclosed home in fair condition that can be repaired for occupancy is a common investment strategy that has worked for many people.
REO Properties
REO stands for “real estate owned” properties, which are bank-owned properties that don’t sell at auctions. Depending on how long they have been repossessed, they may be in various states of disrepair — or they may be in an acceptable condition for a renovation!
Short Sale Homes
A shore sale happens when the seller can’t keep up with payments but would be “upside down” if they sell. In this case, they can work out a deal with their lender. With a short sale, the seller pays less than the payoff amount while the bank sells the home to make a profit. In exchange, the lender forgives the remaining balance of the seller’s loan.
Pre-Foreclosures
A preforeclosure is when the house is in the first step of the foreclosure process and the borrower has missed at least three mortgage payments. This can become an excellent opportunity for an investor because preforeclosures often involve motivated sellers and homes that have a higher chance of being in good condition.
An investor’s cash offer can save everyone involved a lot of trouble. For instance, the lender wants to avoid a lengthy foreclosure process while the homeowner doesn’t want to get a bad mark on their credit through an official foreclosure.
Tax Lien Sale Homes
The government can claim the house when a property owner doesn’t pay income or property taxes. These houses with delinquent taxes are called “tax lien homes.” Investors that buy tax lien sales may need to pay the tax lien encumbrances before owning this property free and clear. However, with a typically discounted purchase price, this can still end up being a good deal.
Where to Find Distressed Real Estate?
There are many resources available for investors who want to find investment properties. Here are some of the most reliable ways investors find distressed real estate in different locales.
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Court Records
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Homepath by Fannie Mae
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Homesteps by Freddie Mac
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Auction.com
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Foreclosure.com
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HUDForeclosed.com
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Distressed property websites
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Public Records
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RealtyTrac
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Multiple Listing Service (MLS)
You will have access to more options and up-to-date information when you work with real estate professionals who specialize in helping investors. A real estate agent can access the MLS and give you recent listings of REO foreclosures and send quick, competitive offers on your behalf.
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Note: Be prepared to offer distressed property owners helpful and compassionate answers to their questions if you choose to reach them through public records. People in financial distress are often in a difficult situation. You may have a chance to help them out, such as buy their preforeclosure before it becomes a foreclosure listing.
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Note #2: If you buy a list that contains public records of distressed homes, it may contain contact information acquired through skip tracing. You may choose to reach out to these property owners through multiple channels, such as a cold call, direct mail, an email, and social media.
Pick Your Market(s)
When finding distressed properties, it’s important that homebuyers research the market where they are located thoroughly. What are the average rental property prices, and property values, and what’s in the highest demand? This information will help you fine-tune your search for distressed properties in your target real estate market.
Work With Real Estate Professionals
To find the best deals, it’s important to work with a real estate agency that understands the unique needs of investors and other people who want to buy discounted properties.
Real estate agents have timely access to information about distressed properties before they go on the market. You can also network with loan officers, property managers, and other investors to get news about upcoming foreclosures or off-market opportunities.
Act Fast!
When distressed market properties appear, you won’t be the only buyer who takes notice. For the best results, get in the action and have your realtor send a cash offer to the property owner. If you plan to use financing, it’s important to have your pre-approval letter ready and to send your lender information as quickly as possible to expedite the loan approval process.
With your realtor’s expertise, you can set a competitive offer price and have all your paperwork in pristine order. When you have a strong relationship with your real estate agent, they should have all your information on file so that drafting an offer won’t be as tedious as typing in every entry from scratch!
Find Distressed Properties with Marketplace Homes
Buyers can snag a great deal with distressed properties. The pros at Marketplace Homes will show you where to look and help you make your first offer — or fiftieth — whichever applies to you! We’ll also help you keep an eye out for new listings and be your strongest advocate when you make offers.
