Distressed Home

An emerging market within the real estate industry is the ever-increasing inclusion of homes, where the homeowners are unable to continue with their mortgage payments. You too could pick up a distressed home at an attractive rate, before flipping it at a profit.

You will need to build up an efficient network comprising of lenders, brokers, agents and even buyers, in order to identify a distressed home, move in to strike a deal and flip it to a waiting buyer. There are various stages from which you could pick up a distressed home. Once a homeowner defaults on his/her mortgage payments, the lender will issue a notice warning the homeowner to clear the outstanding payments, failing which the property could be foreclosed. If you have developed contacts with various lenders, then you could get information regarding these distressed homes and their equally distressed homeowners. You will now need to approach the lender and the homeowner and make them an offer for the home.

If the home has not yet gone into a foreclosure auction, then it is called a short sale. In such a case, the homeowner and the lender are equally motivated to sell the property. The owner of the distressed home could end up with a bad credit record, if he/she were to lose the home and the lender too might not get a decent amount, in case the home was auctioned off. The lender would also need to maintain the home, in case of any delay in the auction. You might have some competition from other buyers, who might also be following the same strategy to pick up distressed homes. You will thus need good negotiating skills, in order to convince the homeowner and the lender to seal the deal in your favor.

If you are new to the real estate market and have no experience to deal in distressed homes, then it would be a better idea to employ an efficient broker and a real estate attorney to guide you through the legal and financial process. Their experience will help you to stay clear of any pitfalls associated with such deals. In case you are too late to pick up a property in a short sale, then you could also pick it up from the foreclosure auction. Although you will need to outbid any competition, in order to purchase the property of your choice. If the lender has not sold the property through an auction, then you might still have a chance to buy it directly from the lender. Such deals are known as REO's or Real Estate Owned and the homeowner is no longer involved in them.

It is very important to have in-depth knowledge of the local laws, since some states do not allow brokers to represent their clients during a foreclosure auction. The legal paperwork of such deals should also be watertight to prevent the former homeowner or lender laying claim to your property, once you have purchased it. An experienced real estate attorney can help you to avoid any such problems in the future.

A distressed home can be picked up and flipped at a very good profit margin. But, in order to do that you will need to build a good network and will also need to negotiate a deal that would benefit all the parties involved. By identifying the proper status of the distressed home and using the right strategy to pick it up, you could quickly create your own niche in the real estate market.

Written by: SP

Date Written: 07/14/08

Reviewer Assigned by: David

Reviewed by: GD

Quality Control: AG

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Quality Control Completed on: 23/07/2008