Should You Buy a Distressed Property?

Published On: March 25th, 2022

If you are like many investors, you’ve considered purchasing distressed properties. But you also know about the risks, so should you buy a distressed property? This guide explains your options make the best possible decisions.

What is a Distressed Property?

First things first: a definition. What is a distressed property? A distressed property is a home that is about to be foreclosed on or that a bank already owns. Many investors look specifically for distressed properties because they hold the opportunity to buy at a significant discount. However, distressed properties can be risky; that’s because they may need significant repairs. The bottom line is that a person who cannot afford to pay their mortgage may not have the money for a routine maintenance and upkeep on a home.

In short, a property becomes distressed when the owner falls behind on mortgage payments or property tax bills, or when a bank repossesses is it.

Is a Distressed Property Right for You?

Only you can decide whether a distressed property is the right choice for your investment portfolio. If you’re confident that you have the right team in place to help you turn a lemon into a diamond, you may want to purchase a distressed property and turn a profit on it. However, if you’re a new investor or you don’t have the capital to risk, you may want to hold off on purchasing a distressed property and stick with something a bit safer.

What Are the Risks of Buying a Distressed Property?

The main risk to buying a distressed property is the fact that it could turn out to have serious issues. In many cases, homeowners who cannot afford to make mortgage payments also can’t afford routine maintenance and repairs. That means maintenance and repairs may have fallen by the wayside for quite some time. The former owner may have even attempted to sell the property but was unable to do so because of the property’s issues.

Additionally, buying a distressed property can take a significant amount of time period that’s because the sale isn’t as straightforward as it would be if an individual owned the home. In fact, even short sales can take months to finalize. As an investor, you may have to complete several steps just to purchase a property that you aren’t sure will pay off in the end.

Why is Distressed Property the Way to Go for Some Investors?

Many investors are comfortable with the high risk involved with purchasing a distressed property. Here are three of the main reasons that some investors prefer to invest in distressed properties:

Significant discounts. Usually, distressed properties are available at significant discounts. That means you can spend the less, fix up the property, and sell it or rent it out at a healthy profit.
Opportunity for significant profits. When you spend less on a property, you stand to make more. It’s simple math.
Fewer delays than building new properties. if you’re trying to decide between building a brand new property or purchasing a distressed property, you need to know that it may be easier to buy a distressed property. That’s because building delays can end up costing you money, and at least with a distressed property, you know that the sale will likely take longer. You can plan accordingly.

Are You Buying or Selling a Duplex, Triplex or Fourplex in Silicon Valley?

If you’re selling a duplex, triplex or fourplex in Campbell, Cambrian Park, Los Gatos, San Jose, Santa Clara, Saratoga, Willow Glen or another community in Silicon Valley, we’re here to help. Call today or fill out the form below to find out about our innovative marketing plans that can put your investment property in front of all the right buyers.

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