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.