To guarantee a profit, real estate investors should find bargain homes. While this may be a feat when you look at standard sales, a whole world of opportunity opens up if you look for distressed properties. This short guide will give you a basic introduction to finding these discounted homes that can be great investments or forever homes.
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 ways:
- 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.
- REO Properties: REO properties are bank-owned properties that don’t sell at auctions.
- Short sales: When the seller can’t keep up with payments but would be “upside down” if they sell, 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: This is when the house is in the first step of the foreclosure process and the borrower has missed at least three mortgage payments. 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. Investors can make an offer to the lender to turn the house into a short sale and get the property at a bargain.
- Tax lien sale: The government can claim the house when a property owner doesn’t pay income or property taxes. Investors that buy tax lien sales may need to pay the tax lien encumbrances before owning this property free and clear.
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.
- Court Records
- Homepath by Fannie Mae
- Homesteps by Freddie Mac
- Auction.com
- Foreclosure.com
- HUDForeclosed.com
- Distressed property websites
- Public Records
- RealtyTrac
- 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.
Pick Your Market(s)
When finding distressed properties, it’s important to 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.
Alicia Persson is the real estate content writer for Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined MH, she was a freelance writer for 7 years, providing real estate and home living content for boutique digital marketing agencies.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When she is not writing, she plays keytar and does female lead vocals in a local 90’s band or spends time with her amazing family.