Top 4 Advantages and Top 4 Disadvantages of Investing in Distressed Property

You might have found yourself thinking...

What are the Advantages of me investing in Distressed Property

Are there any Disadvantages?

Here is a breakdown of Buying Distressed Property in Australia in 2014.

Advantages of Buying Distressed Properties

You'll be dealing with a highly motivated seller – either a bank in the case of a mortgagee in possession or foreclosure, or in a pre-foreclosure, sellers who are in financial trouble and very interested in getting out of a mortgage they can no longer afford.

These types of sales take much of the emotion out of the process. You won't be insulting anybody, for instance, if you make an offer that's lower than the asking price. (That's not to say that the low offer will necessarily be accepted, of course.) If you want to buy with little or no money down in these deals…the less money you have, that more of a strategy, financial intelligence or plan you need to make them successful.

Lenders are extremely interested in getting these homes sold and off the liability side of their balance sheets. The more distressed property on a banks books, the less money they can borrow and hence the less money they can lend out. Many foreclosed/ mortgagee in possession properties can be purchased a lot cheaper than what they would have commanded five years ago. (This situation is beginning to change, though; bidding wars are breaking out on some foreclosed properties these days, especially those that are moderately priced.) Sydney is sparking a property boom in Australia. Cashed up investors from Sydney are starting to get back into the property investing market. How long this will last? I do not know. However one thing to keep in mind is that consumer confidence is at its lowest point since the Global Financial Crises and Consumer Groups are struggling to keep up with the demand for assistance as the number of residents facing mortgage stress and financial stress continues to grow – and there is No Relief Insight.

If you're looking at a pre-foreclosure, you're not likely to get quite as good a deal as on a highly undervalued distressed property or foreclosure. But there are definite advantages to purchasing one of these homes. For one thing, since the homeowners want to get the home sold quickly, they are likely to keep it well-maintained and in good move-in condition. If it is a bank repo or mortgagee in possession it does not mean it is highly rundown. To the contrary. Some of the best foreclosure properties I have come across in Australia have been well maintained mortgagee in possession properties (bank repos), where the investor has looked after a property but can no longer afford to keep it.

 

Disadvantages of Buying Distressed Properties

 

More buyers jumping into the market, (yeahhhh…thanks Sydney) and it is not as easy to find a "steal deal" If you're purchasing a home to live in, you'll often be competing not only against buyers similar to yourself, but against investors. This competition inevitably leads to higher prices. CAVIOT… This is unless you have a great team that can find these properties before anyone else…and we have a Great Team!

The transaction process for preforeclosures or foreclosures often takes longer than for traditional transactions. On first look, it is not always clear which lending institution actually owns a mortgage loan. A loan officer can be invaluable to take in all angles, bring clarity and keep things moving. This is necessary, especially if there's a second mortgage involved - which is often the case.

Some foreclosed properties are also in rough condition. Many have sat idle for too long with minimal or no maintenance leading to neglect. The departing owners may have removed or sold off fixtures, or even damaged the property. I came across a property in Ascot in Brisbane. The owner owed the bank $3,000,000 and it sold for $1,500,000! This is the “IT” suburb in Brisbane for “New Money” millionaires. The owners were so broke, they even sold off the chandeliers before the bank grabbed the property. (Check out Paddington Antique Centre) for absolute bargains from those millionaire wantabees.

Search for foreclosures in your area; we have a specialised team and you can engage our team for help with buying distressed properties. Or check out distressedpropertyaustralia.com

Buying Banked Owned Distressed Properties

Your average home owner who is selling their home or investment property is normally very eager to sell their home. However, this is not true with banked owned mortgagee in possession distressed properties that have fallen into foreclosure. Banks aren't motivated sellers. They will property bank their properties until it is time to sell in a hot market. They can be a bank, that is swamped with files of distressed properties. As a distressed property buyer, your approach will be different than when negotiating directly with a real estate agent that represents the bank instead of a home seller. A Bank Owned property is a property that has reverted to the mortgage lender after an unsuccessful foreclosure auction and then is put back on the market. You need to understand how to deal with these properties.
 
Just because it is a mortgagee in possession property doesn't mean you should jump in with your eyes closed. "When buying foreclosed property in Australia, buyers need to do their homework so they understand the property, the market, the neighbourhood, and the process, and even the next door neighbour. Is it surrounded by home owners or is it surrounded by Ratbag Neighbours that cause ansnked in the area? Local knowledge is the key" 
 
 

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