Three Advantages for Buying Distressed Properties

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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.

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.

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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.

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About Author

Kevin Perk

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 and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

8 Comments

    • Kevin Perk

      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

    • Kevin Perk

      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

  1. 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

      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

  2. Ayodeji Kuponiyi

    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

      Ayodeji,

      Thanks for reading and for the kind words.

      To answer your first question I would refer you to may recent post here:

      https://www.biggerpockets.com/renewsblog/2014/12/08/how-to-find-use-private-money-investing-real-estate/#comment-178423

      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

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