Are you ready to start a new business venture? and that too in real state. Then you have to gain knowledge about different sorts of property that you can buy and get benefit in your business.
A “distressed property” is a good example among those.
Let’s begin to discuss it and we will also try to find out how good it is for real estate investors.
At first, let us understand what a “distressed property” is?
Never get bemused between “distressed properties” and fixer-uppers, even though someone tries you so. Let’s show you the comparison.
Fixer-upper is used for those properties that required some healing and refinement to escalate their value and to generate revenue through the sale.
While a “distressed property” arrives in a blemished state due to negligence, rather registered in foreclosure for not settling down the mortgage or taxes. Hence this sort of property required more maintenance cost than an average fixer-upper property.
How is the entire procedure of distressed sales conducted?
When a mortgage debtor is incapable of settling down the payments of their mortgaged property then they can opt-in selling their property to redeem their mortgage. Viz. of distressed sales are: –
• at the time of divorce
• at the time of foreclosures, or
• while getting relocated.
When a proprietor goes for a short sale then you can term it as a distressed sale. Through this process, the proprietor is attempting to sell their asset below the market price which is also below the amount owed to their lender. It generally happens when the proprietor is forcefully removed by the lender as they cannot wait for the property’s market value to recover. Or, it can also happen if the proprietor gets a new job and for that needed immediate relocation. Or else, at the time of divorce the proprietor is required to liquidate assets which can be given as compensation to the opponent. Before proceeding with the short sale, a lender has to agree on such transactions, this will remove the collateral that secured the mortgage.
The privilege of investing in a Distressed Property: –
1. Lower Price.
This is the most useful benefit which a property investor always looks for. On many occasions, sellers (whose assets are under foreclosure) and the financial organization want to get rid of this asset as early as possible. Hence for this reason they sell it below the actual market value.
Whereas if you got the chance to buy a “distressed property“, then as a real estate agent you have the eligibility to opt for the bargaining process. So, by adopting the sales negotiation process- particularly when the mortgage and interest rates are low – you get the upper hand by in refurbish this sort of property to boost its market value and then selling it for a profit.
2. Potential for High Profits.
The possibility of making a profit on this kind of property is not limited to selling it once the reformation is complete. Quite similar to other products, the value of investment property also grows which is based on time. This is what a real estate investor likes. The property investor should aware of the growing price rate while maintaining the market trend. Hence, after a few years the value of a “distressed property” is constrained to be increased.
Otherwise, a well-qualified real estate investor can convert a distressed property into a rental! By doing it you can generate high revenues and investment from cash flow that create the rental feature. It is correct if the property is situated in a great locality where rent is in demand. Though the clash flow is very much negative in this kind of property, while the investor can attribute positive cash flow at the time of leasing.
3. Better Financing.
As we know that the financial organization, as well as the debtor, wants to get rid of this property as early as possible for this, they are ready to provide it at a better financing rate to those property investors who are looking to buy such. Therefore, the main scenario is buying a “distressed property” for investment, which will provide you with lower interest rates, closing costs, and mortgage payments.
Hence it is a boon for real estate investors while investing in “distressed properties“. However, there are certain flaws in the procurement of such properties, which have to be considered as well.