Making a Move on Distressed Properties

Greetings,

Like most other full time real estate brokers, I've walked through my share of distressed foreclosures and shortsales.  In these properties, you can encounter anything from drifters, to critters, and even hazardous conditions.  A distressed property can be a very lucrative investment, if the stars align.

First, more than likely, you will need plenty of cash in the bank.  While there are rehab and distressed property loans out there, there are limitations to these types of loans, and they may not be applicable to certain distressed properties.  Second, you'll need to get this property at the right price!!  While that may seem like a no brainer, there are many variables and factors to consider to determine what the right price may be to you.

For example, is the property a flip, or will it be used for a primary residence.  Will it be an investment property, is it a multi-unit?  What are the fair market rents?  What would/could be my net operating income?  If it is a flip, what are construction costs? What are the market conditions (both at time of purchase, and projected completion of project)?  What would be the project profit from the sale after all debts and construction balances are paid?  Are there tax ramifications?  If I'm in a multiple offer situation, what's my top dollar?  These are just some of the questions you should be asking yourself prior to even stepping foot in a distressed property.   Remember, the price has to make sense.  In most cases, the top dollar offer for an investment property flipper would be different than the top dollar offer of a owner occupied buyer. It's good business to stick to these numbers and to only deviate with good reason. 

I always get calls when the newest distressed property hits that market, why?  Because it's always perceived as a deal, at least until they walk through it.  There's a saying;  the bigger the risk, the bigger the reward.  What they don't tell you is, the bigger the risk, the bigger chance you have to fall flat on your face.  The best piece of advice I can give people is to get your financial house in order.  Know what your liquid assets are, and be prepared to move on a deal.  If you have equity in another building, and you'll be using that to purchase another property, it's better to have that in place sooner rather than later.  The better the deal, the lesser the time it will be on the market.

And finally, line yourself up with a broker you can consistently call should you see something that grabs your eye.  You should have a good relationship with your agent and be able to trust what he/she says.  He/she has to be able to level with you and tell you what you need to hear regarding market conditions and they should have good relationships within the real estate community.  Your ability to get into the property quick may be the one thing that lets you write up an offer before anyone else.

Good luck, and happy shopping.