Faced with a challenging economic environment, being able to recognise and capitalise on the next opportunity is a crucial skill for investors. And the growth of distressed real estate listing may offer valuable opportunities in real property or real estate-backed debt for savvy buyers.
In the current environment, with new-build developments being cancelled or halted due to the global credit crunch, more and more investors are turning to distressed real estate for acquiring cheap investment property. This type of real estate can be bought at a significant discount from normal market prices and investing in distressed or repossessed property can be highly profitable.
As such, distressed homes or foreclosed properties are proving to be quite popular these days, with their affordable nature and capability to provide instant equity to buyers proving to be a tempting proposition.
For buyers, an investment in a distressed property has several benefits and some manageable risks. It does not require too much expertise just a good measure of research and an adequate amount of caution and self-preservation.
However, investing in distressed assets can present buyers with a number of challenges.
What is involved
The state of a distressed property will depend on how it is sold; buyers may need to undertake repairs to the home. However, sometimes there could be expensive structural issues which need solving.
Investors may find that their new property may still be occupied - during foreclosure the buyer may need to evict tenants, owners or even squatters from the property after they receive the title and this eviction process can be costly and stressful.
When investing in distressed property it is important to carry out due diligence and research into the chosen property. Investors need to choose carefully and understand the process.
Distressed properties may seem very cheap but investors need to be aware that there may be debts attached to the property which the purchaser could be liable for that can run into the thousands of pounds.
Management teams in distressed property
Before investing in any type of property, it is important to understand the potential costs which are likely to be involved. This is particularly pertinent with distressed property, which is likely to require more work than other non-distressed homes.
Investors have the option of appointing a specialist property management company to look after their home or to maintain the property themselves.
If you have never purchased a foreclosure home it is best to work with a Realtor or REO specialist. Working with foreclosure home specialists will provide you greater bargaining power and may help you obtain reduced closing costs or a lower purchasing price.
Realtors and REO specialists have a wealth of knowledge at their fingertips. They can help you locate a foreclosure home more quickly than if you search for them on your own. Additionally, they can you locate distressed properties in the area where you wish to invest in rental property.
Employing a management company to take care of investments is a very hands off approach. The organisation will take care of everything, from finding tenants, collecting rents and dealing with any problems they may have.
They will also ensure that the property is maintained to a reasonable standard.
Overall, having a management team in place when investing in a distressed of repossessed property can help to alleviate some of the stress and difficulties which may be encountered by buyers. From finding the right property to renovating it and letting it out, management teams can help take the hassle out of the entire process.