The media is filled these days with news about distressed properties. Following is a tutorial on distressed properties to help you separate some of the fact from fiction:
Distressed Properties Defined: Contrary to popular opinion, distressed properties are not always in bad shape. In fact, the term “distressed” has less to do with the condition of the house than it does with the status of the mortgage. Basically a distressed property is one that the bank has foreclosed or for which the current mortgage is worth more than what the owners are able to ask when selling.
How to Find a Distressed Property: Finding a distressed property is actually a simple process these days. Research indicates that approximately 25% to 45% of all properties recently sold may be considered distressed. With an estimated 300,000 more of these properties entering the market each month, it’s a trend likely to continue into the foreseeable future.
Benefits of Buying a Distressed Property: One of the benefits of purchasing a distressed property is the ability to save a substantial sum over the previous selling price. Combined with historically low interest rates and other possible incentives, distressed properties offer a unique buying opportunity. Lower sales prices often mean decreased closing costs, reduced private mortgage insurance and even lower insurance and taxes.
Cautionary Considerations: Buying a distressed property isn’t without drawbacks. They are often sold as-is and may require substantial repairs or maintenance. Likewise, purchasing a distressed property may require more time, especially in the case of a short sale. Waiting for bank approval may result in missed opportunities for other prospective properties. It’s essential to perform due diligence and understand the total cost of purchasing a distressed home, including condo or homeowners association fees. Working with a qualified agent is one way to save money and protect yourself against the pitfalls associated with distressed properties.