Distressed property investing has become an increasingly popular real estate investment strategy, especially after the 2008 financial crisis. Investing in distressed properties can generate high returns, but also carries higher risks. The key to success lies in having a systematic investing strategy. There are a few key strategies to consider when investing in distressed properties.
Target properties in developing yet low-priced areas
A good distressed property investing strategy is to target properties in areas that are developing and have growth potential, but property prices are still relatively low. This allows investors to purchase properties at a discount, fix them up, and then sell or rent them out once the surrounding area becomes more desirable. The key is to identify neighborhoods early in their growth cycle, before prices surge.
Focus on quick turnaround fixer-uppers
Distressed properties often require repairs and upgrades to return them to a rentable or saleable condition. Investors should focus on distressed properties that can be fixed up quickly, within a few months, to start generating returns as soon as possible. Extensive overhauls that take a year or more tie up capital for too long. Prioritize properties needing mostly cosmetic fixes like painting, flooring, appliances to get a faster payoff.
Build a network of contractors and real estate agents
A strong network of contractors and real estate agents is invaluable when investing in distressed properties. Contractors renovate and repair properties at the best price and schedule. Real estate agents help source promising off-market distressed properties and market rehabbed properties to sell quickly. Invest time to build win-win relationships with service providers in your local real estate ecosystem.
Secure financing before making offers
Distressed properties often require all-cash offers during acquisition. Investors should secure financing commitments from private lenders before making offers, especially when competing against other investors. Having prearranged financing for rehabs and the eventual retail sale allows moving quickly. Hard money loans, bridge loans, and commercial loans are common financing options.
Distressed property investing can generate high returns for savvy investors. Focusing on developing areas with low prices, speedy cosmetic flips, reliable contractors, motivated real estate agents, and secured financing are key strategies for success.