Mortgages & Creative Financing

Three Advantages for Buying Distressed Properties

Expertise: Landlording & Rental Properties, Real Estate Investing Basics, Flipping Houses, Business Management, Personal Development, Mortgages & Creative Financing, Real Estate News & Commentary
210 Articles Written

Most of the properties I have bought over the years were distressed properties. By distressed I mean that the property is either in or very near to foreclosure. Since I generally buy smaller apartment buildings (with some single family homes thrown in there as well), I find that this is the easiest way to acquire these types of properties.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

I think this is true for two reasons.

  • First, most of the types of properties I buy are already owned by investors.  These investors will generally not sell to me at the discount I need to make the property numbers work.
  • Second, since the property is distressed, the seller (be it a bank or investor) is usually motivated and ready to deal.  They just want out.  Distress often equals motivation, and that is the key.

Three Advantages for Buying Distressed Property

While the motivation of the distressed property owner is a key factor, distressed properties also offer other advantages.

  • Distressed properties offer great upside potential. They have often been managed poorly and are damaged with little to no money available for repairs and improvements. This means that I can purchase, fix up and lease up these properties thus raising their value.
  • The property is often vacant as tenants have fled due to the above problems.  This means there are few if any tenant rights upon purchase and I can screen and select my own tenants when ready.
  • I as the buyer often have the advantage in the sales negotiation process.  They have the problem they need to unload, not me.

So while I look at properties with all types of owners, my interest peaks when I find one who is in a distressed situation.

Photo: 96dpi

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in ...
Read more
    Josh Randall Real Estate Investor from Pikeville, Tennessee
    Replied over 7 years ago
    Kevin, I agree with you. However, are there any negatives to buying distressed properties that stick out in your mind?
    Kevin Perk
    Replied over 7 years ago
    Josh, Yes, they are distressed 🙂 This means they will need work. Either in terms of rehabbing them or fixing them up or in terms of getting rid of the bad tenants and getting good ones in. So you need some expertise in fixing the properties up or in getting bad tenants out and good ones in. Each takes some time to do, but it can be done and once done there is much upside for you in terms of property value. Thanks for reading and commenting, Kevin
    Replied over 7 years ago
    Hey Kevin, great article! How do you usually market that you are in the business to buy to smaller apartment building owners?
    Kevin Perk
    Replied over 7 years ago
    Junior, Good question. There are usually only a few real estate agents who deal with these types of properties in a particular area. A distressed owner is going to call one of these agents to try and market their property. Get to know these agents. Let them know you are looking to buy. They will contact you when they get listings. Once you have bought one of these property types and demonstrate that you can and will close it gets easier. They will call and e-mail you. Do not be turned off by the asking price for the property. Just run you numbers and let the agent know what price works for you. Then go from there. Hope that helps you. Thanks for reading and commenting, Kevin
    Karen Rittenhouse
    Replied over 7 years ago
    Great points, Kevin. When new to investing, we never bought distressed because we didn’t have the cash necessary for fix up. Today, we buy distressed but typically flip them because we don’t want a lot of our own cash tied up in any one deal (other than tenant pay down). Does your method severely limit the number you can buy, or do you use partner money for your deals? Thanks for your article!
    Kevin Perk
    Replied over 7 years ago
    Karen, Thank you for the kind words. We usually borrow money from a bank to purchase and rehab the property. We can buy as many as out credit line will allow, but we are very selective. Which is why I guess we are still in business and bankable after the mess of the past few years. Thanks again, Kevin
    Ayodeji Kuponiyi Investor from King of Prussia, Pennsylvania
    Replied almost 6 years ago
    Great Post Kevin. I bought my first property 2 years ago with cash and I’m in the proess of refinancing it to purchase a single house for my wife and I. My questions are: 1. How do we look for a private money lender to fund our next investment property (preferably a duplex, triplex, quadplex) 2. Should we start small and buy a single family house in the ghetto to rent out (after fixing it up?)
    Kevin Perk Rental Property Investor from Memphis, TN
    Replied almost 6 years ago
    Ayodeji, Thanks for reading and for the kind words. To answer your first question I would refer you to may recent post here: Network with your friends and family and at local real estate and business meetings. As for your second question, there are too many variable there to be able to give you an answer. properties in rougher parts of town can be profitable but there is a lot more risk. Only you can answer how much risk you are willing to take, Talk to some folks who have rental properties in the areas you are thinking about investing in to learn from them what it takes. It will either help you make the right decision or possibly scare you off real estate completely. 🙂 Good luck, Kevin