Follow Neal Twitter Facebook
Email Neal Email
Residential Real Estate
Sep 15, 2017

The Pros And Cons Of Buying A Distressed Property

Sponsored Content provided by Neal Johnson - Licensed Real Estate Broker , Network Real Estate

Every home buyer wants a deal, but when the price of a piece of real estate gets too low, there’s a reason. That’s when it’s time to stop, take a breath and let that tingling Spidey sense go to work.

There’s a good chance you’re standing on top of a short sale implemented by an owner desperate to avoid foreclosure. That doesn’t mean you should automatically walk away - just realize you’re advancing into a minefield and should take care before signing on the dotted line.

Consider the following pros and cons of buying a distressed property to prevent getting burned:


The Pros

The best evidence in favor of buying a distressed property is obvious - the price. It’s what got your nose twitching in the first place.

The reason it’s so low, however, is the owner has neither the money nor time to put into the house to fetch a higher price.
If he or she is not desperate yet, they’re two steps away. Whether you’re looking to live in the place or fix it up to rent out, you sit in the proverbial catbird seat on the deal as long as you retain the power to walk away. Unless the place was built on a dioxin dump or constructed from lead and asbestos, there’s a good chance you could plow some money into it and sell it for a profit.


The Cons

You have basically one reason in favor of buying a distressed property. Every other reason warns you against it.
This is not to say you should walk away from the idea, but be sure you calculate everything that could go wrong. If you find yourself at a creative deficit, watch the 1986 movie, “The Money Pit,” starring Tom Hanks. A distressed property’s condition might be worse than you realize at first glance. Thus, the reason it is called “distressed.” Unless you’re qualified to do the work yourself, you’ll pay (perhaps a lot) for contractors and materials to bring it up to snuff. Electrical and plumbing issues can run into serious money.

Other downsides to a short sale are there’s little chance the homeowner will foot any of the rehab bills, and it’s possible you won’t be able to have an inspector give it the once over before you buy. You literally could be purchasing a property almost sight unseen.

A final drawback is trying to get a lender’s approval for the purchase. It isn’t unusual for this kind of real estate to not meet minimum lending guidelines.


The Bottom Line

If this is your first experience with buying a distressed property, tread carefully. People can and do successfully this kind of transaction every day, but the ones who manage it successfully have a team of reliable contractors in place to do the work and trusted real estate and legal minds to close the deal. Educate yourself on the potential pitfalls, don’t get in a hurry, and you might be just the buyer to turn a money pit around.

Neal Johnson is a CMCA, CRB, CNE and GRI-certified, licensed real estate broker at Network Real Estate, which has exclusively served a high volume of property sales and purchases in the greater Wilmington area for more than 30 years. With three offices at College Road, historic downtown Wilmington and Pleasure Island, Network’s brokers are widespread and well-versed in this marketplace, making Network a preferred real estate company for first-time homebuyers and beyond.

 

 

Other Posts from Neal Johnson

20489 networkrealestate insightsad final 121814105759
Ico insights

INSIGHTS

SPONSORS' CONTENT
Michaelhiggins 41019104338

Guidance For A Surviving Spouse

Michael Higgins - Dignity Memorial
Carolinemontgomery4

Tax Notices In A Covid-19 World

Caroline Montgomery - Adam Shay CPA, PLLC
Burrus rob headshot 300x300

Internal Auditors Can Serve A Key Role In Tough Times

Robert Burrus - Cameron School of Business - UNC-Wilmington

Trending News

Trask Land Plans Two Communities On More Than 500 Acres

Cece Nunn - Sep 17, 2020

Judge Rules Wilmington Vacation Rental Code Illegal

Cece Nunn - Sep 16, 2020

Pier 33 To Offer First Phase Of Apartments In October

Jenny Callison - Sep 15, 2020

Landon Zimmer Reappointed To State Transportation Board

Christina Haley O'Neal - Sep 15, 2020

WDI Names New MSD Operations Manager

Christina Haley O'Neal - Sep 15, 2020

In The Current Issue

CresCom Conversion Completed In August

The signs are up, and the com­puters are talking to each other. As of early August, CresCom Bank is officially part of Washington, D.C.- bas...


Where Will The Money Flow?

Details remain to be settled about how proceeds from a sale of the county-owned hospital would be spent and who would control it....


Experts Offer Small Business Tips

Small businesses affected by the COVID-19-related economic downturn have much to think about for the remainder of this calendar year. So say...

Book On Business

The 2020 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2020 Leadership Accelerator: Virtual Workshops for Real Leaders
2019 Health Care Heroes
August 26, 2019 Power Breakfast: A Healthy Sale?
2019 WilmingtonBiz Expo Keynote Lunch - CEO, nCino, Pierre Naude`