Three Advantages for Buying Distressed Properties
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.
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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.