5 Tips to Buying a Distressed Property

Considering a distressed property, whether you are looking at a short sale, REO, Fannie Mae or Freddie Mac, or other bank-owned property, here are 5 key things you need to consider.

When looking at properties now days, you need to really be wary of a deal that looks like it might be too good to be true. With so many distressed properties on the market, there are certain things you must keep in mind and do, in order to get what you really want in a property.

1. Find out everything you can about the property

Investigate and find out everything you can about the condition of the property. Ask a lot of questions concerning the condition of the home and title to the property. The age and location of the property will dictate some of the questions you need to ask and get answers to.

Do not be cheap and forego the Home Inspection. It will probably cost you between $300 and $500, but that is money well spent if it uncovers an otherwise hidden problem with the property or provides you with the peace of mind you are seeking before making one of the biggest purchases of your life.

2. Find out what the property is worth

Make sure you look into what the property is really worth in today’s real estate market. Not what the seller is asking for the property, not what the 2 year old appraisal says the property is worth. Get some comparable sales, check tax records, find out what similar properties are being offered for sale are asking. If you can, get the opinion of a couple of real estate professionals (agents, brokers, appraisers, lenders) in the area.

3. Get the right people on your team

You need to make sure you have the right people on your side when it comes to buying a distressed property.

Experience Realtor/Broker – Whether the property requires a discount because it is a short sale, REO, bank owned property, or foreclosure, you have got to have a real estate professional who has real experience dealing with that type of transaction. They need to have successfully negotiated and closed several similar properties.

Lender-Your lender, if you need to secure financing for a distressed property is very important. They need to be knowledgeable and flexible in their approach to funding the deal.

Attorney-You may need a lawyer to look over and explain all the legal documents to you. If most real estate transactions in your area are settled or closed by attorneys, you may need to find one in order to get the deal done.

Closing/Title Company-In many parts of the country, it is usual and customary for real estate transactions to be closed by title companies. If this is true in your part of the country, you should get to know someone at a local title company. If you are borrowing money to purchase the property, your lender may specify which title company they want you to use. Realize that as a party to the transaction, it is often up to you, who you want to close the deal. Having a great title company that you can call to ask questions has been one of the keys to my real estate investing success.

4. Make a smart offer

More and more, it is becoming important to make your best offer on a property right from the beginning. Just this week a client of mine made what we thought was a good offer on a Fannie Mae property. He lost the property to another bidder for just $2000. It turns out there were 4 others offers on this property. Had we known, he would have made his best offer and be moving into his dream home. But, since he did not get a chance to counter-offer or change his offer, we will just have to keep looking for him a new home. Big lesson learned. Make your best offer if there might be other bidders on a property-especially a distressed property.

5. Know what the seller’s requirements are and meet them

Whenever you are involved in a distressed property situation, you need to find out what the sellers requirements are. In the case of a short sale, the seller and his/her lender(s) requirements need to be taken into consideration and followed. These requirements change often and without warning or notification. Any one of them that is not followed exactly, is enough to kill your deal and keep you from getting the property. Authorizations, financial documents, contracts, and other information has to be submitted according to the lenders guidelines.

Bonus Tip: Be patient or be willing to walk away.

Do not fall so in love with a distressed property that you are not willing to call it quits and walk away if things do not go according to plan. If you discover a problem with the property or the title, if your realtor just can’t get the deal negotiated to your satisfaction, if your lender will not fund the deal at a decent interest rate, if the whole process is taking too long (and I mean over six months), you have to be willing to throw in the towel and find something else.

There are terrific deals to be found in today’s distressed real estate market, but there is a price to pay in terms of extra effort, research, and time. Somebody always pays.

That’s my two-cents worth. Make it a great day!