Distressed properties can be a profitable opportunity for real estate professionals and those just getting started in real estate. However, you need to know how distressed properties work.
A distressed property is a home under foreclosure or that is in some way controlled by the lender or bank. When the owner falls behind on their property taxes or mortgage payments, their property becomes distressed. Divorce and bankruptcy may also cause the property to become distressed.
The risk to reward ratio of purchasing foreclosed homes varies based on the home’s foreclosure process. The competition for purchasing foreclosed homes is fierce. Real estate investors will pay in cash for a foreclosed home and then use it as an income property.
Foreclosed homes are purchased as-is. The condition of the home is neither guaranteed nor disclosed to the buyer. The buyer needs to get as much information as possible before bidding on a house.
Angry previous owners may have destroyed some foreclosed homes, or may have “looted” them to sell valuable things like kitchen appliances, fixtures such as ceiling fans and light fixtures, and other things that would normally be sold along with the home. Sometimes the owner is honestly angry about their situation and destroys the home out of spite, sometimes the damage is due to neglect, and sometimes they simply don’t want the bank to profit from appliances or fixtures they installed themselves. Whatever the cause of the damage, it can require expensive repairs, such as air conditioning, heating, and roof repairs.
However, the upside of purchasing foreclosed homes is that you can often find some great deals that allow you to do minor repairs and get a significant return on investment. If you are looking for a home to live in, foreclosed homes financed through HUD and the FHA have less competition and are marketed to owner-occupants first.
With foreclosed homes, sweat equity can add real-world equity to the home and increase profits when it comes time to sell the house.
A short sale is when the mortgage lender lets the borrower sell the house for less than the owed mortgage amount. The seller avoids foreclosure, and a short sale does less damage to their credit than if the home was sold through a foreclosure sale.
A short sale may reduce the amount the bank looks to recoup from the homeowner. For example, if the house is valued at $200,000 and with a short sale is sold at $175,000, the bank probably won’t pursue a deficiency judgment. This will save the homeowner thousands of dollars.
In El Paso, there are several listings for foreclosure, pre-foreclosure, short sales, and share of sales. Residential properties are available starting at under $50,000 and go higher than $300,000. There are single-family units, duplexes, and multi-family units available for sale.
You can make money buying foreclosed properties, but you need to know the challenges you are undertaking ahead of time and choose properties carefully. Don’t be swayed by a bargain purchase price. You must ensure that the property is the right choice in your situation.
At Acala Investments, we can help you learn more about foreclosed homes for sale and decide if they are a good investment choice for you. We’re very familiar with both the real estate market in El Paso and with real estate foreclosure investing, so we can act as your guide as well as helping you fund your investment. Contact us today to get started.