What an Investor Should Know Before Buying a Distressed Property
Buying a distressed property is an appealing idea especially to an investor with imagination. The idea of taking it at a lower price, and then convert it to something valuable is attractive. But, is the purchase worth it?
Despite the risks and issues that a distressed property has, distressed property holds an enticing promise to an investor. Before any investor embarks on taking up a distressed property as a challenge, below are some of the things he or she should be familiar with:
Low market price doesn’t translate to low-cost
Buying a cheap may mean you will make the best investment, but that is not the case at all times. Consequently, a low-cost price tag on a property does not mean the property is of low value. This is why it is important for an investor to know the basics of getting a return on a property. A distressed property has a low price tag since it has many problems. So, before getting that property ensure you know how every dollar you spend on that property will offer you a good return on your investment.
Distressed property requires more investment
A distressed property takes up more investment than a traditional investment property. This is because the property needs an overhaul not sprucing up and you may not see this in real estate virtual tours. Some of the overhaul projects may include plumbing, flooring, sub-flooring, and roofing. These overhauls may be time consuming and expensive as well. In fact, renovating the property could cost you as much as you paid for the property.
Multiple unanticipated risks
Distressed properties are full of risks and potential problems that real estate virtual tours may not show. If you think a home inspection will save you on this, you are wrong. You are likely to stumble into problems that you least expected. You will encounter issues down the road so be prepared to deal with them, or do not take up the property in the first place.
Distressed property is for the flipper
Investors who buy and hold property are not the only people who go for distressed properties. When a flier buys a distressed property, they know they will let go of it eventually, so the current state of the market and market fluctuations are not anything to shake these investors. Also, experienced investors know how to handle distressed properties and will, by all means, buy them. The runway from purchase to return is short, and these investors can calculate a different risk tolerance. A buy and hold investor buys distressed property knowing that they can rent them out for a short while then resell later for better returns.
Buying distressed properties with the idea of first renovating, then renting out will not get you much success. There is also considerable risk involved. If you wish to flip, you may go ahead and acquire as many distressed properties as you can. But, if you are in the real estate for long-term investment do not get your hands on a cheap property.
So, are distressed properties worth it?
Whether you are buying property for long term hold, or quick turn-around, you should only purchase a distressed property, if you have enough experience in the investment world. Experience will make all the difference, and the effort of buying the distressed property will be worth every dime spent, and energy channeled in acquiring the property.