Things to Keep in Mind When Considering a Distressed Property Purchase
June 18th, 2008
1. This is the most problem prone and strenuous type for real estate purchase.
2. You NEVER get a perfect house. You get price per square foot. You must be willing to put in the time and money to create your perfect house.
3. You must have more capitol to purchase a distressed property. On average you need 10% of the market value in cash to reinvest in the property. Turn key distressed properties are extremely rare here in the Seattle area.
4. Most if not all of the time the seller (if it is a bank, trust company, or Relocation company) has no knowledge of the properties previous history. So, the inspection process on the house is more costly, because of all the types of issues that will need to be inspected. It is recommended that the potential buyer do more than a typical inspection. It is recommended that the potential buyer also pay for “Sewer Scope” (about $250.00) and any contractor’s charge “estimate fees” for project estimates.
5. In most if not all distress properties the water and electricity is shut off. The Trust Company and or the seller WILL NOT turn them on, so the buyer might test the plumbing or electrical systems as part of the inspection. In most cases the buyer will have to pay an outstanding bill, to have those systems turned on. If the purchase is continued after inspection the seller will reimburse buyer for paying outstanding bills at escrow. “You have to Pay to Play”.
6. This is a down market you are BUYING Distressed Property; where there is one; there are others. So, if you see market values slipping in the same area as the foreclosure you are purchasing, your purchase is also will be a part of that slipping market.
7. The house has to be livable in order to get financing.
8. Banks have a bottom line too. They will only go so low no matter what the issue is with the property. Lending institutions are losing billions of dollars, a few hundred dollars matters to them. You have to be willing to take on the issue for the price or walk away.
9. You will be scared. You will be nervous. You will have Doubt. Your Realtors job is to negotiate that price to a large enough margin; so if you screw up; you will not be upside down in your purchase.
10. If there is not commission built into the purchase price, you will have to add it to the purchase price. You are making money, and so should your Realtor.
