Many of the available homes on the market today are foreclosures, which usually means that these homes are sold in “as is” condition and some are in relatively poor condition. For experienced real estate investors this may be the opportunity they have been waiting for, for others it may end up costing them more than they were prepared to pay to restore the home to a livable condition. With so many of these unwanted home available and more being listed every day, this in deed a buyer’s market. But be prepared because these homes typically need a lot more than a fresh coat of paint to make them appealing to other buyers.
One of the greatest risks of purchasing distressed homes is how much the home is worth; both in its present condition and once you have made all of the necessary repairs. Keep in mind that the worse the condition of the home is the more costly it is going to be to make all of the necessary improvements. This is where many beginners tend to get into trouble, they feel that the price is a steal but forget to take into account how much they will need to spend to make the property livable. When considering purchasing a distressed home it is important that buyers take a thorough walk through of the property and list everything that needs to be repaired and then either determine how much the work will cost to perform on your own if you are capable or get estimates from professionals. This will help you determine how much the property will actually cost you in the long run.
Another risk of purchasing a distressed property is that you may not be able to find a lender. Lenders often steer away from financing distressed properties, or they will charge you a higher interest rate than you would typically have paid for a home in better condition. Before the financial crisis that we recently experienced this wasn’t as much of an obstacle as it is today; however lenders have changed how they evaluate who to lend to and who not to take a risk on. Before purchasing a distressed property it is important that have a lender who is willing to work with you and provide you with the funds necessary to purchase the property; but be prepared, the interest rate may be higher than what you were expecting.
Whenever you look at a distressed property it is also a good idea to have an experienced inspector walk through the property to point out any problems that you may have missed. Experienced inspectors know what to look for in homes that have been vacant for a long period of time and they know the most common problem areas to look at first. It is often worth spending the extra money so that you are aware of how much additional money it will cost you later on.