Distressed property can often be purchased below market value, so they are very desirable to property investors. Foreclosures and short sales are not the only reasons you can get a deal on a property. Here are seven situations that can lead a seller to be motivated to sell their property quickly and often at a steep discount.
7 Situations That Can Cause Distressed Property
A Couple Separating or Going Through Divorce–
If a couple who owns a property together separates, the home is often put up for sale. Since both parties are motivated to get rid of the property quickly for emotional and/or financial reasons, these types of properties are often priced to sell quickly rather than to get top dollar for the property.
A death in the family can lead to a distressed property.
If the home is owned by two individuals and one passes away, the remaining person may not be able to fulfill the mortgage commitment on their own. They may put the property up for sale at a discounted price in the hope of getting it sold quickly before they default on their mortgage.
If a property has a single owner and he or she passes away, the property is usually put up for sale in something known as an estate sale. Again the intent here is not always to get the highest price possible, but often to unload the property quickly and divide the money up among the remaining kin.
Property owners who have to move quickly due to a job relocation are motivated to sell their current residence quickly so they are not paying two mortgages. This often leads to a willingness to accept a lower offer than they would have otherwise entertained.
A distressed property often arises due to some sort of financial strain. Whether a job loss, pay cut, divorce, medical condition, or some other financial drain, the owner is no longer able to afford to pay the mortgage, taxes, or municipal services (water /sewer, trash collection, etc.) on the property. The owner may be eager to sell before they miss a mortgage payment, so they are willing to accept a discounted price for their property to avoid doing so. Another scenario is that they may have already missed numerous payments and are working to get their bank to accept a short sale to prevent the property from going into foreclosure.
The condition of the property often warrants a reduced sale price. Some common property conditions that can lead to reduced sale prices are:
Properties That Need Updating– Properties that are in poor condition will not merit top dollar, so buyers who are willing to take on these fixer-uppers can often purchase the property at a reduced price.
Properties That Need Extensive Renovation– Some properties need layout changes, additional square footage, plumbing and electrical work, a new roof, changes to the foundation or even a gut renovation. These properties that need more than a few simple updates are often steeply discounted because the pool of interested buyers is that much smaller.
Property Renovations in Mid-Construction– These are properties with renovations that were started, but not finished. For example, a developer buys a property, starts renovating, but runs out of money and is unable to complete the renovation. The developer then puts the property up for sale to attempt to recover some money from it or cut their losses. In these properties, work often needs to be completed before the property is habitable.
A distressed property can be the result of a dispute or falling out between two parties who own a property in a joint venture agreement. They may have to unexpectedly sell the property once their relationship goes south so an interested buyer can benefit from their necessity to sell.
Bank Owned (REO)–
Properties that have been foreclosed on and are now owned by the bank can often be obtained at steep discounts. The lender’s goal is simply to unload the property at this point. Beware because many of these properties need extensive renovations as they have been abandoned for a long period of time.
Remember that this is not an exhaustive list of distressed properties, but it should give you a good working knowledge of situations to look for that can allow you to get a good deal on a property. Look for problem properties and then find a way to solve the problem.