Pros and Cons of Buying Distressed Property

As a homebuyer, you want to find the best deals on the market. Finding the best home for a fair price takes some work. There are a lot of factors to take into consideration.

The time of the year has an effect on the price, the location, the size of the home, and many other factors as well. One way to find a house at a discounted rate is to look for a distressed property. When house shopping, if you were to come across a listing for a home that seems much cheaper than you’d expect, then chances are it’s a distressed property.

Are you considering buying a distressed property? It could be a great investment after weighing all the pros and cons. Before making your final decision, be sure to have a good understanding of what a distressed home is and what the pros and cons are for buying one.

Continue reading below for everything you need to know about buying a distressed house!

What’s a Distressed Property?

The first thing to know is what distressed property is. Sure, you may be thinking that a distressed property is a property that’s well, distressed. You wouldn’t be wrong for thinking this, but there is more to it, however.

A distressed property is a property that’s being sold by the lender or is otherwise in foreclosure. This happens when the owner of the home isn’t able to keep up with the property’s taxes or the mortgage. When this happens, the distressed property tends to sell for under the market value.

This could be a great investment for you or a potentially bad one. You’ll need to review all of the pros and cons to make the best decision for you.

The Pros

There are several pros to buying a distressed property. If the pros outweigh the cons in your specific situation, then making the purchase could be beneficial for you. Here’s what you need to know.

The Price

When the lender is selling distressed property, the lender will most likely want to sell the property as quickly as possible. Because of this, you’ll not only be presented with a low price, but you’ll be able to negotiate it as well.

Purchasing a house at such a low price point allows you room to put money into the property and then sell it for profit.

The Profit

Profit in distressed homes can be huge in the right situations. With such a low price, making the purchase won’t be as big of a financial setback for you as it might with other types of properties. And if you make the right renovations, you could leave with a big return on investment.

The Potential

Distressed properties have a world of potential within them. Keep in mind that many distressed homes have several maintenance issues. If the homeowners were unable to keep up with the payments, then they most likely weren’t able to keep up with the maintenance either.

However, many investors take this as an opportunity to see the potential that the home has to offer rather than focusing on the problems it has.

The Cons

Although the low price tag on distressed homes and the potential high return on investment make it a wonderful option for many investors, there are some cons to keep in mind as well. Here’s what you need to know.

The Location

Unfortunately, many distressed properties are in neighborhoods that don’t offer the highest appreciation rates or monthly rent costs. This is why it’s so essential for an investor to research the location of the property.

If found in a neighborhood like this, you’ll have a cap on how much you can profit from it even after completing repairs and renovations.

The Competition

Not all distressed properties are in neighborhoods where you can’t make a large profit. Some are located in ideal neighborhoods. Either way, you’ll need to prepare for some competition.

Other investors will want to jump on the deal just like you, which may even raise the price on the home.

The Renovation

Although you’re getting the house for a great price, you need to remember that it’ll need lots of renovations. Unfortunately, these renovations can be costly. If you don’t calculate the cost of renovations into your budget, you could find yourself in over your head.

Remember that renovations take time as well. Be sure to factor in renovation costs and time frames into your purchasing plans.

Tips for Buying

When you’re ready to buy, you’ll want to know a few tips for buying a distressed property. Below, we list a few tips of our own that we have for you!

Have Experience

Always have some type of experience to back you up. If you’re new to the game, work with a realtor and home inspector who can help you make informed decisions.

Have Cash

Your competition is going to have cash in hand. To compete, you’ll need to have cash in hand as well. If need be, borrow money from a lender and increase your down payment size to stand above the others.

Have Patience

In some, but not all, cases, the purchase of a distressed property requires extensive paperwork. If this is the case, you’ll need the patience to work through the deal.

Is It Time to Invest in a Distressed Property?

If you’re considering purchasing a distressed property, then you’ll be thankful to have knowledge of all the pros and cons of doing so. After reading through our guide, we hope you now know if it’s a good time to invest in a distressed property or not.

Good luck with your investment adventures and be sure to visit us daily for more helpful posts!