The purchase of a distressed property is a great way for new investors to get into the real estate market – even with the ups and downs of the real estate market in the last decade, property remains a solid investment.  But buying distressed property isn’t without some risk, and isn’t something you should jump into before seeking advice from experts like Welfont Group, who have experience with this type of purchase.  Here are some things to keep in mind.

Time Requirements

Purchasing distressed property is not something to consider if you are looking for a quick closing date, or if you plan to “flip” the property on a relatively short time-line.  Patience is key when considering this type of investment. Especially if a property is in foreclosure, there can be a great deal of paperwork and negotiation involved in closing the deal.  If you are planning to live in the property, you need to keep in mind that repairs or renovations can take a long time to complete, and will almost certainly be required to make it livable – typically, the work that is required goes well beyond the cosmetic, and can involve major structural overhauls, complete updates to electrical and plumbing systems and more.  All of this will require permits and time.   Additionally, there is the near certainty that repairs and renovations will take longer than expected.  If you are planning to purchase a distressed property to flip, remember that you will need to wait for local market conditions to improve to the point that you can recover your investment – given that most distressed properties are located in equally distressed neighborhoods, this can take years.

Cash Offers

Because distressed properties are priced to sell, it may be possible to arrange a cash deal for the purchase.  A cash deal is definitely a good idea for the purchaser because interest rates may rise more quickly than the value of the property, and interest payments can chew into your investment if you still have years to go before you can sell. For sellers, who will likely be looking for a quick sale, a cash offer will be more attractive than an offer contingent on financing.  Most importantly, it may be difficult to obtain financing from mainstream institutions.  Very often financing is contingent on inspections according to certain standards which a distressed property may not meet.  For all of these reasons, the purchase of a distressed property is best suited to a buyer who is able to make a cash offer.

The purchase of a distressed property can be a great investment as long as you have a realistic view of the timelines and have made a careful evaluation of the costs involved.  Patience and vision are perhaps the most important things that a purchaser can bring to the table when thinking about buying a distressed property – both of which can be rewarded handsomely!