Can Investors Who Buy Homes Profit in a Distressed Real Estate Market?

Today, investors who buy homes have more opportunities than ever before. The downturned real estate market and credit crisis have led to an abundance of foreclosure and bank owned properties. Investors can purchase single family homes to sprawling mansions for as low as half of their original value.

Distressed properties can yield substantial profit for investors who buy homes. Many investors purchase foreclosure and bank owned real estate with the intent of rehabbing the house and quickly selling it for profit. Others engage in wholesaling; a form a house flipping that does not require anything more than locating a qualified buyer.

In order to purchase foreclosure homes, investors must bid on properties through public auctions. If no one places a bid on the property it is returned to the bank. Once real estate is owned by the bank, investors must submit bids through the bank's loss mitigation department.

Bank loss mitigators negotiate real estate deals between investors and lenders. Loss mitigators do not approve or deny offers made on distressed properties. However, they can be instrumental in providing information to investors which can help them seal the deal.

Anyone who has worked with a lender's loss mitigation department will tell you it is crucial to be nice to bank loss mitigators. The individuals can make or break your real estate deal. Realize, these individuals are usually overworked and underpaid. Being respectful and polite will go a long way in obtaining properties for sale through lending institutions.

Distressed properties generally require repairs and renovations. These can range from adding a new coat of paint to interior or exterior walls to complete demolition. Common repairs include appliance upgrades, replacement of flooring or carpet, plumbing and electrical upgrades, and repair or replacement of HVAC systems.

Returning homes to their original luster requires both time and money. Real estate investors that engage in rehabbing homes will need to organize a team of contractors and subcontractors to restore the property. Workers need to be expedient with repairs and renovations. Otherwise, the renovation will take longer than expected and cut into the investor's projected cash flow.

Rehabbed properties can be sold for profit or used as rental homes. Houses can be leased on a long- or short-term basis. Some investors purchase homes located in popular vacation spots and rent the property to tourists.

Investors who buy homes for use as vacation rentals must calculate expenses associated with short term rentals. Most vacation rentals are furnished and equipped with all the comforts of home. Vacation homes must be cleaned after each use.

Most investors require tenants to provide a security deposit. If the tenant causes damage to the property, investors must provide evidence as to why they retained all or part of the security deposit. Some states require investors to obtain a license for short term rentals, while other states require landlords to charge sales tax. Regardless of whether the home is being rented on a short- or long-term basis, it is imperative for investors to fully understand the landlord / tenant laws of the state where the property is located. Otherwise, investors could be setting their self up for lawsuits.

Probate homes are another popular choice amongst investors who buy homes. Probate properties include real estate which belonged to a person who has died. During the probate process the decedent's estate is required to pay expenses related to the real estate such as mortgage payments, property taxes, homeowners insurance and general maintenance.

If the estate does not possess sufficient funds to cover expenses, the estate administrator can sell the property to eliminate financial burdens. It is not uncommon for probate properties to be sold for pennies on the dollar.

Probate real estate can be located through probate courts. Investors will need to research courthouse records to locate homes held in probate. Once properties are located, investors must contact the estate administrator to begin negotiations.

These are just a few investment opportunities for investors who buy homes. If you are considering investing in real estate, it is imperative to develop a strategy. Create a business plan, engage in market research, become educated about real estate laws, and organize a team of real estate professionals.