America saw a housing boom in the mid-2000s driven by low-interest rates offered by banks. However, in 2007, the housing bubble burst and what followed suit was the biggest recession in decades since the Great Depression of 1929. When the real estate crisis came to the fore, many home buyers were unable to make mortgage payments for the homes they had bought. This has resulted in the creation of a lot of distressed properties that are up for grabs for those who have the means to afford them. You would also come across probate sales where the property is passed on to the heirs or beneficiaries after the owner’s death as per the terms of the will. Nonetheless, the effect of the subprime meltdown can still be felt and this is ascertained by the huge number of properties that are foreclosed or are up for sale in auctions. If you’re looking for a home or want to invest in real estate then there’s no good time like now.
What led to the subprime meltdown?
After the 9/11 attacks, the US economy struggled for a short while but recovered after the Federal Reserve cut interest rates. The Fed brought the interest down to as low as 1% by June 2003 to give a boost to the fledgling economy. This worked like a charm as the nation soon recovered and economic activity picked up. The demand for houses picked up in the thriving economy and banks tried to cash in on the real estate opportunity in the form of mortgage payments. Banks and financial institutions offered low interest rates for buying homes and this led to a home-buying frenzy. Even those applicants were approved who had a weak credit scores because these institutions thought that the economic boom would sustain in the medium term and the debt would be cleared easily. However, there were fundamental problems in the approach as the bubble eventually burst and borrowers started defaulting on their payments. Thus the subprime mortgages failed miserably and the meltdown started which led to large-scale unemployment and home foreclosures.
What is a distressed property?
A property about to be seized by creditors, usually banks, because of failed mortgage payments is called a distress property. Such a property can be in distress for other reasons as well such as neglect, failure to maintain the property due to moving out of station permanently, or an estate going through the probate process.
Where do you find information about a distressed property?
- Bank auction: Banks have a separate website where they maintain a list of properties to be auctioned. Interested buyers can check the website for the property where they’ll get the necessary information regarding the location of the property, current owners, and the debt liabilities. Banks conduct auctions to sell distressed properties through an official advertisement where buyers can bid for the property.
- Contacting owners directly: You can also drive around different neighborhoods looking for neglected homes with overgrown weeds and unkempt lawns as well as on sale notices. You can contact the owner directly this way and carry in negotiations without an intermediary. In several such cases, the owners are looking to sell their properties quickly and you might get a good deal.
- Probate properties: Searching for probate sales is another excellent way to invest in real estate. These are properties that are transferred to the heirs after a court hearing is done to ensure the implementation of the decedent’s will. Property goes through the probate process after a critical life event such as death or divorce. The heirs do not want the property in many cases and look to sell it as quickly as possible. If you have the patience to wait out the entire legal process, then you could get possession of your dream house at a significantly cheaper rate.
- Online property listing firms: There are several property listing forms online where you can find the right property to invest in. These firms have all the important information regarding a property up for sale, especially distressed and probate properties. The data is categorized properly and you would get all the necessary information about the property such as the address, contact information, geography, demographic, auction details, and so on. This would save you hours of searching public records and roaming around neighborhoods looking for neglected properties since these are considered cumbersome by many.
Advantages of buying a distressed property
- Lower valuation – these properties have lower valuation than the prevalent market rate because they are not preferred by majority buyers due to the time taken for possession and the legal process involved. On the plus side, you can get a home at an incredibly lower price.
- Improved living standard – If you can find a property that’s in distress in a nice neighborhood, you get the opportunity to move into a spacious home with a great outside view. The living standard automatically improves when you move into such a property that would’ve been out of reach otherwise.
- Good profit potential – Investing in probate properties is a profitable enterprise for real estate entrepreneurs as it helps them grow their businesses.
Conclusion
Investing in what is called a ‘distress property’ is a great way to create wealth from the real estate market. Such a property is generally cheaper than the market value because it is sold in distress. This is a highly profitable proposition as you could create a passive income source through such an investment or even get a home in your desired neighborhood which would have been unaffordable otherwise.