Investing Tips for Finding a Distressed House

One of the best ways to break into the real estate investment realm is to buy a distressed house. The smart investor will understand this is the perfect way to obtain properties for under market value. The distressed house can sell for as much as 70% under the appraisal value.

You can find a distressed house in several ways. The first resource is the local real estate tax office. Someone who cannot keep up on the property tax may not be able to take care of his or her mortgage either. Homes which show taxes in arrears by six months or more are generally a good target for being a distressed house. It is wise to approach this type of seller with a mailing circular. The mailing will allow the seller to feel they are reaching out under their own terms. This makes for a friendlier first meeting.

Another source for a distressed house is banks and financial institutions REO lists. REO stands for ‘Real Estate Owned’. There are many foreclosures listed with several agencies due, in part, to the real estate crisis in going on right now. Banks are not in the habit of buying and selling real estate. When there are too many distressed houses listed, the lender appears to be unstable. This can cause problems for them on the secondary market when they’re trying to find investors for other loans.

The upside to this from an investor's standpoint is the financial agencies will make deals. The distressed house can be bought for pennies on the dollar. When an investor finds a distressed house in a neighborhood showing a significant decline the negotiations can become quite favorable. Properties have been known to go for as little as $500. As the market started to pick up, the investor was able to sell the property for one hundred times what he paid for it. That amounts to a significant profit. Consider the fact the investor also collected rent on the property while waiting for the market to grow.

When discussing rentals, the distressed house is one which should not be overlooked. The savvy investor knows the better the house and neighborhood, the better the rental income. Because the investor was able to get the property for under market value there is also equity built up in the home. The distressed house can add greatly to the investor's portfolio. It can offer buying leverage when another property becomes available.

Many financial institutions are becoming more selective when dealing with investors who buy and sell real estate. Some of the lenders are even saying ‘no’ to non-owner occupied loans. With a portfolio of distressed houses, the buyer is considered less of a risk. The distressed house can actually give the investor leverage when dealing with lenders.

Government agencies which specialize in backing loans have become overwhelmed with foreclosures. This is another avenue the real estate investor can pursue when searching for a distressed house. Many of the homes listed are offered ‘as is’. This means the buyer should consider a professional inspection before making a purchase. The benefit to finding a distressed house listed with these agencies is being able to negotiate the terms of the sale. The investor can offer 25% - 30% below market value and usually have the bid accepted. He or she can again start with positive equity already in the property.

When it comes to real estate investing, the wise investor should consider the distressed house. This could lead to a very profitable experience.