How to Succeed Buying Distressed Properties
If I had a dime for every inquiry about buying distressed properties over the last year I’d be writing this from a tropical paradise instead of North Atlanta. It’s easy to get the impression that banks and lenders are giving these properties away; they’re not. In fact, most of the properties start about where “conventional” homes are listed. Some sell, if they don’t then the seller either corrects issues in them, lowers the price until they do or does a combo of both. Are there exceptions? Of course and in December two buyer clients of ours scored huge deals. What did they do? They prepared, they knew what they wanted and they were DECISIVE. In this market, I’m seeing lenders look first at the strength of the buyer, then how fast they can close, then the price – that’s a HUGE change as now “speed kills”; we’ve seen lower prices accepted for buyers that will close quickly. Here are my steps for success:
1. Get prequalified. Don’t waste your time or ours, if you can’t afford to buy then either get there or forget the idea.
2. Get mentally prepared. Our two buyers above went from walking the home to owning it in less than 21 days. It happens fast and you need to be ready for the process as it will test your metal.
3. Be decisive. Define success and when you attain it, take it. Vegas, Atlantic City and other casino towns thrive on gamblers that don’t know when to cash in. I have three buyers right now lamenting over being unrealistically greedy and losing opportunities that they know they should have jumped on.
4. These homes might be nasty. Understand that these homes are usually “as is – where is” and all the other “is’s” that you can imagine. I’m actively completing about 30 appraisals a month – about 10 are either distressed or headed that way. I have seen owners vandalize them, strip them bare, pop holes in plumbing lines to facilitate mold, use the air ducts as for pet waste and other nasty things and even pour fast hardening cement products down the drains. There’s a reason many homes are priced low.
5. Get ready for head games. Some listings will be sold immediately upon listing (think insider trading), some will be intentionally listed low to facilitate a bidding war (works well), some will be contracted and still appear as active (to collect leads if the contract fails) and some lenders will simply not negotiate choosing instead to wait for their price. You can almost bet the house that a home can sit for a year and the minute your offer goes in the selling agent will tell you they need your “highest and best”….often you bid against yourself.
6. Work with professionals. I promise you that if you go in without a skilled buyer’s agent and a reputable lender you will be filleted. Once you find a house it has to be literally taken apart to ensure that you’re aware of any issues and cost to repair. You better have trusted contractors and tight reins on the budget, cost overruns and “unknown” issues tend to surprise folks. Learn a lesson from all the “TV infomercial investors”; know what the spread is between your final costs and comparable homes. It’s funny tragic how many of these homes have an “investor owned” pedigree.
7. “YES Men”. If you’re surrounded by “yes men”, fire them. It’s a great time to buy SMART but the number of SMART buyers and legitimate deals out there is limited – very limited. If all you hear is a Pollyanna song about the market, agents tossing “rebates” at you, lenders “cutting to the bone” and such nonsense…you’re headed for trouble. This economy is a train wreck and will be well into this year, buy accordingly.
The bottom line is that you can achieve success with distressed properties, the key is how well prepared you are. I know we’re uniquely qualified because we complete prelisting appraisals on them, churn data literally for hours each day, work with buyers actively searching them, work with lenders and attorneys skilled in this area and we have trusted contractors. We’re always ready to go – if you are then I’m certain we can help.