Distressed For Sale

While buying and selling regular homes might provide you with a limited profit margin, it is in buying distressed homes, rehabbing them and then selling them off, which can provide you with a very high margin. This specialized niche will require you to develop an extensive network of information of sellers and buyers and thorough legal knowledge to ensure that you do not get stuck with a desirable property at an undesirable rate or get caught in a legal wrangle after you have purchased it.

Homeowners that are unable to pay their mortgages may find that their lenders have issued notices warning them that their property could be taken away from them through the foreclosure process. If you have the right contact among various lenders, then you could get some valuable information regarding such homes. You could then contact the homeowners and their lenders and try to purchase such homes through the 'short sale' process. The homeowner would be willing to go in for a distressed sale, since his/her credit rating would be severely affected, in case the home was forcibly sold through a foreclosure auction. The lender too might not get a better rate through the auction and might also be ready to assess your offer.

In case the home does go into foreclosure auction, then you would still have a chance to pick it up. However, check the financial and legal status of the property before you bid, since some of them might have pending tax issues or liens attached to that home. The homeowner might also not have maintained the property in a decent condition due to his/her bad financial condition. You might also need to evict the homeowner after you buy the distressed property and that could become a time and money-consuming affair, if the owner does not co-operate. Ensure that you do not get emotionally charged up during an auction, but instead remain calm and stay within your predetermined bid amount.

The lenders might also have some repossessed properties in their possession. You should tie-up with an experienced Real Estate Owned [REO] expert, who can then deal directly with the lender. In such deals, the homeowner is in no way involved and you can pick up a distressed home without anyone's interference. Your REO expert might have a large contact base and that can be tapped to get a wider range of properties to choose from. You should also take along an experienced contractor, in order to make a physical assessment of the condition of the property and work out the estimated expenses, since ignoring this vital aspect could severely affect your profit margins.

There are various methods to pick up distressed properties such as short sales, foreclosure auctions, REO's, etc. Good negotiating skills and an efficient team of professionals can ensure that your venture into the distressed homes market turns out to be a highly profitable one.

Written by: SP

Date Written: 07/15/08

Reviewer Assigned by: David

Reviewed by: GD

Quality Control: AG

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Quality Control Completed on: 23/07/2008