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Keith Wagner

Broker Associate

 

Distressed Properties Can Be a Good Deal, But Be Careful

Real estate investors may be able to secure a good price on a "distressed property": a foreclosure, lender-owned property or Short Sale.

As many as half of the listings in some markets fall into that category. In the past, prices for distressed properties were well below those of traditional resales. However, while you can still get a good deal, it''s not as easy as it used to be. And investors should perform due diligence and be aware of potential problems before seeking that type of property.

A few years ago, investors were primarily interested in lender-owned foreclosures because of the extraordinary values they represented.

More Competition for Foreclosures
But now, they''re also looking at more traditional resales. The price break on foreclosures is getting less and less, for a variety of reasons. With the inventory of properties dwindling, there''s more competition for lower-end homes, both among investors and buyers looking for a home.

Another factor: Lenders are less willing to accept extremely low offers.

In the past, you could sometimes offer them 50 cents on the dollar and they''d accept it. Today, instead of accepting a really low offer, they''ll reject or counter it. And they usually get close to the asking price.

The Short Sale market is on the upswing.

You''re probably going to get a better deal than with a foreclosure. The other thing is that Short Sale properties have generally been occupied by the owners, and you won''t face deferred maintenance issues as you do with foreclosures.

An inspection is vital, especially with a foreclosure that may have been unoccupied for months. The previous owners may have damaged the property or removed appliances and fixtures.

Inspect With Utilities On
You should insist on having inspections with the utilities turned on. If a property has been sitting empty for a long time, and the showers and dishwasher haven''t been running, gaskets and rubber washers can dry out and create leaks.
With a foreclosure, repair costs often amount to 10 to 20 percent of the sales price, McCole says.

Still, if you find a property at a good price and repair costs seem reasonable, a distressed property can be a good option.

You have a good chance to recoup your costs and end up with a good long-term investment.