The 6 Most Common Types of Distressed Property 2023

What is a distressed property? We answer that and give out the 6 most common types of distressed properties. Read till the end to find out how to sell or buy a distressed property.

Before we look at our most common distressed property types, let's answer a couple common questions.

What is a distressed property?

A distressed property is a term used to describe a real estate asset that is facing financial difficulties or is in a state of disrepair. These distressed homes are typically sold below their market value due to their condition or financial status, and may require significant repairs or renovations before they can be sold or occupied.

A property can become distressed for a variety of reasons, such as the owner's inability to make mortgage payments, unpaid taxes, or a lack of proper maintenance. Distressed properties can offer opportunities for investors or homebuyers to purchase real estate at a discounted price, but they also come with potential risks and challenges.

Buyers of distressed properties may need to be prepared to navigate complex legal and financial issues, and invest time and resources into making necessary repairs or renovations.

Why investors buy distressed properties

There are many reasons why investors may choose to purchase distressed properties beyond just the potential for profit or discount. One of the reasons why investors may purchase a distressed home is to have a positive impact on the community.

Distressed properties can often be a blight on the neighborhood and decrease the value of surrounding properties. By purchasing a distressed property, investors can make necessary repairs and renovations to improve the property's appearance and value. This can help to increase property values in the surrounding area and make the neighborhood a more desirable place to live.

Another reason why investors may choose to purchase distressed properties is to provide affordable housing options. Distressed properties can often be purchased at a lower price point than other properties, and investors may be able to make the necessary repairs and renovations to provide affordable housing options for individuals and families who may not be able to afford market-rate rents or home prices.

Ultimately, while profit is often a motivating factor for investors who purchase distressed properties, there are also many other reasons why these properties can be attractive investment opportunities. From contributing to the revitalization of a neighborhood, to providing affordable housing options, to preserving important cultural or historical landmarks, there are many ways in which investing in distressed properties can have a positive impact.

6 common types of distressed properties

Now, let's get into it. The 6 common types of distressed properties:

1. Pre-Foreclosure and foreclosed homes

A pre-foreclosure occurs when a homeowner has fallen behind on their mortgage payments, but the lender has not yet repossessed the property. During this time, the homeowner may still have the opportunity to sell the property and potentially avoid foreclosure. Homeowners who are in pre-foreclosure may be motivated to sell quickly in order to avoid the negative impact of foreclosure on their credit score and financial stability.

Foreclosed properties, on the other hand, are properties that have already been repossessed by the lender due to the homeowner's inability to make mortgage payments. These properties are typically sold by the lender in order to recoup some of the money owed on the mortgage. Foreclosed properties may be sold at a discounted price in order to attract buyers quickly.

2. Short sales

Short sale properties are homes that are sold for less than the amount owed on the mortgage. They typically arise when the owner is in financial distress and cannot keep up with the mortgage payments. In a short sale, the lender agrees to accept less than the full amount owed on the mortgage in order to avoid the cost and hassle of a foreclosure.

Short sale properties can be a good option for buyers looking for a bargain, but they can also be a complex and time-consuming process, as the lender must approve the sale and there may be other liens on the property that need to be resolved. Sellers considering a short sale should work with an experienced real estate agent who can guide them through the process.

A short sale is not the only way to well a home with an underwater mortgage. CreativeOffers specialized in personalized offers for unique selling situations such as little-to-no equity homes. Check out CreativeOffers to receive a creative selling solution or get in contact to apply for the referral program and get paid to help your client find a solution to their selling situation.

3. Fixer-upper

Fixer-upper properties are homes that require significant repairs or renovations. These properties can be a good option for buyers looking for a deal, as they are often priced lower than comparable move-in-ready homes. However, they can also be a major undertaking, requiring time, money, and expertise to bring the property up to a livable standard. Before purchasing a fixer-upper, buyers should carefully assess the scope of the necessary repairs and renovations and develop a realistic budget and timeline.

However, there are also risks associated with purchasing a property that needs repairs. One major risk is that the cost of repairs can be higher than expected, which can quickly eat into any potential savings on the purchase price. Additionally, repairs can take longer than anticipated, which can delay move-in dates and add to the overall costs of the project.

There may also be unexpected issues that arise during the repair process, such as the discovery of hidden damage or the need for additional permits or inspections. Buyers of fixer-upper properties should carefully assess the risks and be prepared to invest the time and money necessary to bring the property up to a livable standard.

4. Probate properties

Probate is the legal process of settling the estate of a deceased person. When someone dies, their property and assets are typically distributed to their heirs through a probate court. If the deceased person owned real estate, their heirs may inherit the property.

Some heirs may choose to sell the property rather than keep it for a variety of reasons. For example, they may not want the responsibility of managing or maintaining the property, the property may require significant repairs or renovations, or they may need to sell the property quickly to generate cash for other purposes. Other reasons for selling an inherited property may be personal, such as wanting to avoid family conflict or not wanting to hold onto a property with emotional ties to the deceased.

When a property is being sold as part of a probate process, it is referred to as a probate property. Buying a probate property can be a good option for buyers looking for a deal, but it can also be a complex process with its own unique challenges.

5. Tax lien properties

Tax lien properties are homes that have unpaid property taxes. When property taxes go unpaid, the local government can place a lien on the property, which gives them the right to sell the property to recoup the unpaid taxes.

Property owners may choose to sell the property before the government takes possession to avoid losing the property entirely. Buyers may be interested in purchasing a tax lien property because they can often be acquired at a discount.

Buying a tax lien property can be risky because there may be other liens or debts on the property, which can make the purchase more complicated and costly. Additionally, buyers may need to invest significant time and money into bringing the property up to a livable standard.

6. Abandoned properties

Abandoned properties are homes or buildings that have been left vacant for an extended period of time. These properties may be neglected, damaged, or in need of significant repairs. Buyers may be interested in purchasing an abandoned property because they can often be acquired at a lower cost than move-in ready homes.

Buying an abandoned property can be risky because there may be hidden issues that are not immediately apparent, such as structural damage or code violations. Additionally, abandoned properties may require significant time and money to bring up to a livable standard.

How to sell a distressed property?

If you are a distressed property homeowner, you are likely facing a difficult and stressful situation. Financial challenges, unexpected life events, or a lack of resources can all contribute to a property falling into a state of distress. It can be overwhelming to try to navigate the complex legal and financial issues that often accompany a distressed property, and you may feel like there is no way out.

But it's important to remember that you are not alone. Many homeowners have faced similar challenges and have successfully navigated the process of selling or saving their distressed home. There are resources available to help you understand your options and make informed decisions about your property.

While the process may be difficult, it's important to stay positive and take steps to address the situation. Seeking the advice of a trusted real estate expert like CreativeOffers can help you understand your options and make informed decisions about your property. Whether you decide to sell your property, negotiate with your lender, or explore other options, there are resources available to help you navigate the process and find a solution that works for you.

Remember that your distressed home does not define you, and there are options available to help you move forward. With the right support and guidance, you can successfully navigate this challenging time and emerge stronger on the other side.

Where to find distressed property leads

Distressed properties leads can be found in a variety of ways. Some buyers search for properties that are listed for sale as short sales or foreclosures, which can often be found on real estate websites or through a real estate agent.

Others may attend foreclosure auctions or search public records for properties with tax liens or other legal issues. Networking with real estate investors or wholesalers may also uncover distressed properties in your area that are not yet on the market.

Additionally, buyers can search for properties in neighborhoods that have a high number of vacant or abandoned homes, as these properties may be more likely to be distressed. Ultimately, finding distressed homeowners to help requires a bit of research and legwork, and buyers should be prepared to be patient and persistent in their search.

Summary

Distressed properties are real estate assets that face financial difficulties or are in a state of disrepair. They are sold below market value and may require significant repairs or renovations.

Distressed properties can offer opportunities for investors to purchase real estate at a discounted price, but buyers need to be prepared to navigate complex legal and financial issues and invest time and resources into necessary repairs or renovations.

There are six common types of distressed properties, including pre-foreclosure and foreclosed homes, short sales, fixer-uppers, probate properties, bankruptcy properties, and properties with outstanding tax liens. Each type of distressed property comes with its own unique set of risks and challenges.