Why Buying A Distressed Property is the Best Decision

What does it mean for a property to be distressed?

A distressed property can be said to be a property on sale because the owner is in a financial difficulty, or has an urgent need for money due to some personal circumstances. This could be debt payment, relocation, or medical emergencies.

It may also mean that the owner wants to invest the funds in another business.

The seller in a distress sale, is always willing to sell the property at a lower cost, just to sell it quickly in order to avoid any financial loss. Often times, the property in question would require that the buyer do some renovations and repairs.

However, there are some properties which are up for distress sale that do not require any renovations at all. The owner is selling because of their financial need.

In traditional sale, the seller is not selling their property because of any financial worries.  Here, the property is priced at market value and the seller has more control and may not be willing to negotiate.

The difference between a distress sale and a traditional sale is the motive behind the sale. A distress sale is always quicker and cheaper, and most property buyers are always in search of distress sales.

What Are the Benefits of Buying Distressed Property?

1. Low purchase price: a distressed property often cost lower than the actual market value because the owners are in urgent need of money. Most buyers who are looking for good deals find this opportunity very attractive.
2. It has potential for high ROI: some distressed properties require renovation which costs money and time. However, if you are willing to invest the time and money needed, you will definitely increase the value of the property and sell it for even more profit.
3. Less competition: due to the potential risks some distressed properties have, most people shy away from them, this makes it less competitive.
4. Fast closing process: distressed properties are sold “as-is” or “sharp-sharp.” This means that the process is less stressful and complicated than a traditional sale.
5. You can customize the property: buying a distressed property gives you the opportunity to renovate or reconstruct the property to standard which will help to push up the value.
6. It has the capacity for higher rent income: if you are buying a distressed property for the purpose of investment, then you have the opportunity to charge higher rent after putting the place in order. This will definitely increase your residual income.
7. It gives you the opportunity to own a home: some homeowners bought their homes on a distress sale. This offers people who would have not been able to afford a home at market value the privilege to have one.

What Are the Advantages of Buying a Distressed Property?

1. Potential savings on purchase price:

People who buy distressed property often save money on the price of purchase. This is because distressed properties are often priced below market value due to the owners’ predicament.

Buyers are able to save up to 30% of the actual market value – which can be immensely beneficial for first-time buyers or those with constrained budget.

You should note that, buying a property on distress does not always promise a low purchase price. This is because the condition of the property may require significant renovation, and this can consequently shoot up the overall cost when you add it to the purchase price.

Buyers are therefore advised to conduct a detailed inspection and duly research the documents, so as to make an informed decision and potentially get a bargain buy.

2. A distressed property offers you much better deals than traditional sales:

i. The fact that the prices of distressed properties are below market value makes them more attractive to potential buyers.

These buyers end up saving a lot of money from the opportunity. This kind of deal benefits buyers who cannot afford to buy at existing market price or have a tight budget.

ii. The owners of distressed properties are motivated to sell quickly. This motivation can favour the buyer during negotiations. The seller is more willing to lower their asking price or negotiate on other terms like the closing cost of repairs.

This will help the buyer get a better deal than they would have got in a traditional sale, where the owner is not motivated to sell quickly.

iii. Distressed properties offer great opportunities for investment, like house-flipping, fix-and-flip, buy and hold to resell.

If you are willing to invest your time and resources into renovating and improving the property, this could be a “big-bang” investment for you.

The value of the property will increase and you can subsequently sell it for a significant profit or make rent money from it.

Distress sales can offer you a much better deal than traditional sales due to lower purchase price, motivation of the seller to sell quickly and great investment opportunities.

3. You can get the opportunity to acquire a luxury home at a discount:

One of the sweetest advantages of buying a property on distress is the opportunity to buy a luxury home or high-end property for cheap.

This gives people who would not have been able to acquire this kind of property the opportunity to upscale their living by owning a luxury home.

This kind of home is often sold below the market price because the owner is in a tight corner financially.

Potential Risks Associated with Distressed Property

While buying a distressed property can offer a lot of benefits like savings and investment opportunities, it is crucial to understand the potential risks associated with it.

These risks can include hidden and unknown issues about the property, legal disputes on the land, or even a more complex buying process.

To mitigate the risks associated with distressed property, you should take the following steps:

1. Conduct a property title search to ascertain the documents on the property, and also identify any legal issues associated with the property. You should involve an attorney to help you review the documents and sales contract.
2. Be prepared to negotiate with the seller, and also work with a reputable real estate agent who has experience in this kind of transaction. The agent should be able to understand the potential cost of repairs or renovation,
3.  Make sure you have the necessary funds in place before an offer on a distressed property. This will help you speed up the process and ensure that the deal is sealed promptly and without any hassles.

Overall, it is important to know about the potential risks involved in buying a property on distress. If you follow the steps above, you will be able to make a smart buying decision when it comes to distress buying.

With due diligence and proper groundwork, you can have a fantastic deal and enjoy the benefits of buying a distressed property.

How can I find a distressed property to buy?

Finding distress sales demands effort and research, however, we have listed few strategies that can help you to find distress sales:

1. Online search: when you search online by typing keywords like “distressed properties,” “distress sales,” ‘short sale,” “distress homes for sale,” you can find websites of agents or listings that contain distress sales. Also, don’t forget to type in the location you want the property. For example, “distress sale in Ikoyi.”
2. Get a real estate agent: an experienced and knowledgeable real estate agent can help you identify distress sales in your preferred location. Real estate agents mostly know which property is a good deal for you, they work with your budget, and they can give you guidance because they have an idea of the market price of any property in your preferred location.
3. Network with other investors: real estate investment groups and online forums can help you meet other investors who may know about some distress sales in your preferred location. Forums like real estate forum Lagos, Nigeria and Housing and real estate forum for expats in Lagos.

Tips to Navigating the Process of Buying A Distressed Property

1. Conduct a thorough inspection: this is very important so that you can identify issues with the property. This knowledge could be helpful if you choose to go ahead with buying a property that could need renovation.
2. Get your funds ready: this can help you in your negotiations because you already know how much you have budgeted for the transaction. Most sellers are happy to further lower their asking price if they see a buyer who is willing to make payment immediately. So, having money ready can work in your favour.
3. Be ready to act quickly: even though you are interested in the property, bare in mind that there are potential buyers who want the same property and are willing to pay for it if they get the opportunity, since the property is in the open market with different agents listing it on their sites. That’s why your funds have to be ready so that you can make payment the moment the coast is clear for payment.
4. Get an experienced real estate agent: who will provide you with the necessary guidance throughout the buying process. They will be helpful in identifying issues on the property that need to be fixed and provide insights on the cost of repairs.
5. Negotiate effectively: you should be ready to negotiate and make an offer to the seller since they are willing to sell quickly. Try to note the seller’s minimum price and any possible taxes on the property.

Read: Real Estate Investment and Stock: Which is Better for You?

Tips on How to Negotiate A Better Deal

Negotiating a better deal for distressed property purchase definitely requires strategic thinking and adequate preparation. Check out a few tips:

1. Research the local market and the property you have to find out from the local market the actual value of the property and what the potential appreciation is. This can be handy during negotiation.
2. Don’t ignore to include non-monetary sweeteners in the negotiation, like assuring the seller that you are willing to make payment immediately, giving them a flexible move-in date, that is if the seller is still occupying the property.

Tips to Increasing the Post-Purchase Value of the Property

Want to increase the value of the property post-purchase?  You should be willing to invest in renovation and upgrading the property. Here are some tips:

1. Concentrate more on the kitchen and bathrooms: these two sections offer the best ROI in terms of renovation. Changing and upgrading items like bathtubs, cabinets, tabletops, showers and so on can improve the property extensively.
2. Make the property more energy-efficient: this can really appeal to prospective buyers and also improve the worth of the property. Features like insulation, HVAC, system or installing nice-looking and powerful doors and efficient windows can achieve this goal.
3. Improve the facade of the property: things like new painting, landscaping and changing the front doors can give your property a facelift and further increase the worth.
4. Add more living space: things like, adding an extra room, a basement, a study room or even a relaxation point can do wonders to the value of the property.

Investing in renovations can help you boost your return on investment and has the propensity to attract you fantastic resale offers or improve rent income.

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