Part 3:
Make Money Investing In
Distressed Properties

If you know the basics of real estate investing, then you know the key to making profits is basic economics - buy as low as you can and sell as high as you can.  This is the case with any other kind of investment and real estate is no different.

What makes a simple equation into something difficult is finding properties with a price low enough to make a substantial profit.  Investors who work with distressed properties have found a niche that serves them perfectly.

Distressed properties have a lower market value because of factors that will vary from one property to the next.  It may be in poor condition or have a bad appearance.  Or, the property itself may be fine, but the owner is facing a difficult financial situation.  Whether the property is in a physically- or financially-poor condition makes a difference in your approach.

While investing in distressed properties can be lucrative, it can be costly too.  That's why it's important to choose these properties wisely.  Choosing the wrong one could cost several hundreds to several thousands of dollars.  Even if you have this kind of money to throw away, you could probably find a better way to do it.

Be careful with, or maybe even stay away from properties that need major repairs like a new roof or foundation.   You can often end up sinking so much money into these types of properties without improving the value enough to make a justifiable profit.   Instead, choose distressed properties that require minimal repairs and provide a generous return on your investment.

For instance, a lot of properties just need some paint or carpet.  And many times you can just do some cleaning and make a place look a lot better.  Cleaning up the outside of the property can make a big difference in getting it sold.  The outside is what usually makes the first impression.  So if you can invest in a little landscaping and general "curb appeal", you'll take a big step toward having a saleable property.

Not all distressed properties need repairing.  Some properties are distressed because the owner is having financial difficulty caused by divorce, death, or job loss, among many other factors.  Although the owner(s) may be facing a difficult time, your investment can keep the situation from worsening.  In many cases, where the property is financially distressed, you can resell the home without having to spend a great deal of money on repairs.

If you find a distressed property and you’re interested in making an offer on it, you have to act quickly.  Contact the homeowner as soon as possible to find out how you can help take the property off their hands.  If you're buying it outright, get financing as quickly as possible.  It helps to have relationships with a few lenders who can help you get funding.  When you take too long, other investors swoop in with their own offers and before you know it, home ownership has already been transferred to another investor.

Of course, there are numerous ways to invest in a property without buying outright, such as "Subject To" and lease options.  But whatever method you're using, you'll want to act quickly.  Whether it's the property that's distressed or the owner, other investors are looking for deals like that too and often they won't last too long, so speed is important.  Just don't get in such a hurry that you fail to do your homework and accurately calculate expenses or get an accurate idea of the property value.  On the other hand, don't over-analyze deals either because by the time you're done, it may be gone.

You might want to put together a checklist of things to remember when you're analyzing a deal.  Go down the list and check things off.  Once you've got the facts, and especially the numbers, see if they make sense.  Either they will or they won't.  If the numbers don't make sense, don't let your emotions get involved and try to twist things around or use wishful thinking and hope the expenses won't be as high or something.  That's a recipe for disaster.  But if the numbers make sense, it's a deal, so act quickly and get it under contract.

Sincerely,

Todd Heitner

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