Discover the Hidden Gems of Real Estate
Looking for a great deal on a property? Distressed properties - those in need of repairs or facing foreclosure - can offer huge potential for profit. But how do you find these hidden gems, and how do you navigate the buying process?
In this video, we share insider tips for finding and buying distressed properties, from scouting out neighborhoods and working with real estate agents to negotiating with sellers and securing financing. Learn how to avoid common pitfalls and make the most of your investment in distressed properties.
Watch now to uncover the secrets of this lucrative real estate niche.
More of a reader? Catch the video transcript below!
So, we’ve all seen it on HGTV: a way-too-good-looking couple walks into a property that looks like garbage, they make some ridiculously low offer, they buy the house, and now they’re happy homeowners of this distressed property.
They roll a little paint on the walls, put a cute flower on the table, stage it and sell for a billion dollars in profit, right? That’s usually how it goes.
But how do they do that?
The first step is finding the right property that’s below market value that needs work. So, that’s what we’re going to talk about today.
How to Find the Right Distressed Property
Know Your Market
How do we know if a property is a good deal? Well, where is it? What kind of condition is it in?
You’ve heard it over and over: location, location, location. If your budget is $500,000 and you find a great property for that number in La Jolla, that’s going to be a killer deal. If you find a $500,000 700-square-foot property in the outskirts of San Bernardino, that’s not going to be your best investment.
What we’re going to want to start with is the after-repair value. Think: how much can I sell this thing for when I’m done?
Know Where to Look
Next, you’ll want to make sure you’re looking in the right places.
The truth is, you probably aren’t going to find the perfect distressed property on the multiple listing service (MLS). Sometimes you will, but a home that’s a good deal and on the market for everyone to write an offer on it usually gets a ton of activity, which drives the price up and the margins down.
So, aside from finding them just sitting on the market with a for sale sign in the front lawn, how might we find them?
Look for default notices
Well, one way that you can find them is by going down to the county and looking at notices. Find people who are behind on their monthly payments. A lot of people who are behind in their payments are typically already short on cash, so you can assume that they aren’t doing a ton of maintenance on the property. Homes with deferred maintenance that aren’t being well cared for tend to sell for a really good deal.
Network with real estate pros
Another way you can find them is by networking with real estate professionals. A lot of these investors that I work with are successful because they’ve made a lot of really good relationships with agents like me. So, when I have a client that calls me and says, “hey, my grandma passed away and she lived in the home for 97 years and she hasn’t even painted it since, like, 1865”, I’m thinking, okay, that property is probably going to be a little bit below market value because of its repair needs. If I think that a lender won’t loan on it because it’s in such bad shape, the first thing I’ll do is call some of my investor friends who flip houses to see if they might be interested.
Drive around!
A third way to find good distressed properties is by doing what they call “driving for dollars”.
This is literally just driving around a neighborhood that you want to invest in and if you see a house that looks like a good contender, knock on the door! There are a bunch of tools online where you can find contact information based on a property. Maybe you contact the owner on file and they say, “Oh, this was my grandma’s house and it’s just been sitting there because we don’t know what to do with it.”
So, simply driving around and finding dilapidated properties in a neighborhood that you want to invest in can be a great way to find your next flip.
Direct to Owner
Finally, you can skip the middleman altogether and advertise direct-to-owner.
A common way to do this is to send mail directly to the owner. Another way to do this is by what they call “bandit signs” (AKA the ones that say “we buy ugly houses”). You can also run Instragram ads, Google ads, email campaigns, and other methods of digital marketing.
So you’ve found a distressed property. What’s next?
If one of those methods yields an opportunity for you and you get a property under contract, it’s time to get down to the nitty-gritty and crunch some numbers.
Look at the Investment from All Angles
You’ll want to weigh what the owner is asking for the property versus what it’s going to be worth when you’re done repairing it. What’s a ballpark estimate of what the costs will be? How much is it going to cost to hold the property until you can sell it?
Make sure that you know the market and the numbers really well, and that you’re considering things like whether it’s on a busy street, if it’s adjacent to industrial buildings, if it doesn’t have a garage, if it has a really small or obsolete lot, if it's surrounded by apartment buildings, and other things like that that could murder your value in a hurry.
Assemble Your Team of Pros
Bring in the experts to advise you. Work with an appraiser to figure out what your after-repair value might be. Work with a contractor to get an estimated repair price and make sure you understand the timeline of the repairs. Work with a real estate agent to understand where the market’s going to be when you go to sell it and calculate how much it’ll cost you to hold it until it’s ready.
When you work with professionals, you can have a pretty good idea that you’re going to make a handsome profit. You want your real estate transactions to be a blessing, not a burden — and by working with professionals and making sure you’re making a sound decision, you’re setting yourself up for success.
Becoming the Next Chip & Joanna
So, those are the steps to finding the right distressed property and ensuring that you’re making the right investment so you can become the next Chip & Joanna Gaines, right?
Remember that they make flipping houses look so much easier on TV than it is in reality. So, make sure that you’re well-educated on the risks and that you have the right professionals in your corner so you can make a profit with your distressed property.
That’s going to be it for me today — thank you for reading and I’ll see you in the next one!
