Investing in distressed property is considered as promising. You may have not heard about this term before. Distressed properties are assets in the form of property which offers some of the best deals available in the market and ready to be owned. They can be found in various forms.
Property becomes distressed mostly due to distressed debt. It is when the owner of property defaults on mortgage loan payments. Distressed debt can also be caused when the owner fails to pay off their loan when maturity comes. Distressed properties are considered promising because they are at below market value.
Causes of distressed property
Distressed properties are often in need of improvements as well as repairs. If you decide to invest in this type of property, you have opportunity to increase the value by renovating and re-listing. Distressed property’s sell prices are usually below market value because the owners tend to sell it in a hurry.
This will make you easier to negotiate the process of buying. Therefore, the possibility to get lower price is even higher. However, you may need to know the reasons behind property in distress.
First is the financial is often to be one of the most common reasons why property goes into distress. People may experience financial difficulties which cause them to sell their property immediately. Those financial circumstances often lead them to default on mortgage payments.
Secondly, another reason why property in distress is due to the death of family member. Thus, the remaining individual has no ability to make mortgage payments which cause them to put the property on sale immediately even if it means they put the price below the market value. Sometimes, when one family member dies, the remaining individual has no desire to manage the vacant property which causes them to sell it instead.
For the third reason, divorce or separation is also most common cause of distressed property. When both individuals decide to separate their ways, they are more motivated to sell their property because it is the fastest and most effective way to do. Thus, it will become easier for them to divide the value they gain from selling their property.
Another reason why property in distressed is because the owner wants to relocate to another place. If they do not put their property in sale, they need to pay for two mortgages at once which is burdening. Thus, they often choose to sell their property immediately before relocate to another area.
Last but not least is vandalism and neglect can put a property in disrepair. Thus, it leads the property to be in distressed. When the owner has no ability to renovate their property properly and leave it in disrepair, they often choose to sell their property. Due to disrepair situation, the price of the property goes lower even below market value.
Buying distressed properties can be the best way to invest if you are in limited budget. However, you still need to prepare your budget for repair expenses if you want to add the value the distressed property you are going to invest in.