Distressed Properties - Investor's Delight

What is a distressed property?

A distressed property is any property where the seller is really motivated to sell as soon as possible. Distressed properties are houses, land or commercial spaces most times suffer from long term neglect and are in a poor condition. Which is due to owners current financial situation: mostly debts but not in all cases. Properties under foreclosure, due to an owner being delinquent, can also be considered distressed.

Finding distressed properties means finding undervalued real estate

If you want to find distressed properties, you must realize that nobody calls their own home “a distressed house”: unless of course they need to sell really urgently. You also need to know that fundamentally, a distressed property is one which is “undervalued” precisely because the owner needs to sell quickly.

What this means for you, is that there are certain properties that have all the characteristics of a “distressed property” but won’t be called or listed as such. So if you were to simply search online for “distressed properties” you will be missing out on a large percentage of homes that are “undervalued”.

What makes a property undervalued?

For you to understand what makes a property undervalued, you need to understand what makes it valuable in the first place.

The market value of a property is dependent on a number of factors including:

- Inflation rates

- Population growth

- Infrastructure

- Demand and supply

- Changes in nearby real estate

- Future government plans

In the case of a distressed property, an owner is willing to forgo (discount) some of the value his/her property has in order to sell quickly. Hence we have an undervalued property.

If you have a good understanding of factors that make a property valuable and how they relate to the real estate market in your target city, finding distressed properties and eventually doing lucrative deals is a given.

How to find distressed property

Investors need to focus on real estate markets that show a strong demand for property. The stronger the demands the easier it will be to both buy a distressed property and eventually sell it.

Further, in order to make you search easier you need to focus on a particular property type: are you seeking commercial properties: hotels, offices ? Or are you focused on land or residential buildings?

Below are some of the best ways to find distressed properties:

Go out looking:

A more hands on way of finding distressed houses, is to hop in a car and go driving around a targeted neighborhood.

When you do go out, what you want to be looking for are specific signs that a property may be distressed, so things like:

- Properties that are in an obvious state of neglect.

- Properties that look unkempt: overgrown grass, broken windows and peeling/faded paintwork etc.

- Uncompleted buildings

-Undeveloped land in relatively built up neighborhoods

Bank owned properties

Bank owned homes are distressed properties that have already been repossessed: under foreclosure. Banks repossess homes for a number of reasons, including where people cant keep up with their mortgage payments or some other form of loan for which a property was used as collateral.

Often these bank owned properties sit there for long periods of time incurring maintenance costs. These properties are considered “cheap real estate” as rather than incur these costs, banks would prefer to get rid of these properties quickly and often at a discount. The quicker a bank sells the quicker they can recover the balance owed to them.

Banks often list these properties on their own websites. You can also always make a direct inquiry over the phone.

Government owned properties

In Nigeria we have the Asset Management Corporation of Nigeria (AMCON). AMCON is an agency of the federal government saddled with the responsibility of stabilizing the financial system by buying up non-performing loans from banks and related financial institutions.

These non-performing loans are often collateralized with property, which AMCON takes possession of and proceeds to sell to try and recover debts owed. AMCON has a range of different properties for sale from across the country. You can find a list of available AMCON properties on their website.

Search real estate listings online (and offline)

You can find distressed houses for sale by looking at real estate listings. Pay particular mind to forums, online classified sites and newspapers. Here you can find many sellers that are motivated to sell quickly.

Remember, what you are searching for is not just listings with the term “distressed property” but rather properties that are below market value. A lot of the time these undervalued properties are so, because they are actually distressed.

Work with a real estate agent

Real estate agents are an invaluable resource when it comes to buying properties. Due to the fact that agents network with other agents they are able to source deals based on what particular types of real estate you are seeking.

Additionally many estate agents are in direct contact with banks, lenders and government agencies. Therefore they may be aware of far more distressed properties than that which you would find online. This is beneficial to a distressed property buyer as you will gain access to the best deals before it’s too late. So be sure to develop a relationship with an estate agent.

In conclusion

Buying distressed real estate is seen as appealing by many investors as they potentially offer profitable real estate investment opportunities. You can buy distressed real estate for reselling or for rental yield (after renovation).

The process of finding distressed properties for sale can be difficult, but can also be much simpler, if you educate yourself on some of the best methods to use and places to look. By utilizing a mix of different strategies (highlighted above) for targeting these properties, you are sure to find a range of potentially great deals.