Distressed Property? Well, It Must Be Good Then... Right?
Yesterday a gentleman called me to purchase an investment property. He informed me he wanted to by a “distressed” property. I asked him what a distressed property is and he enthusiastically responded “You know one of those foreclosed properties you can get for sixty thousand!” I chuckled and replied “that is a distressed property alright”. Then conversation went on for sometime as I explained that there are many distressed properties. Depending on your definition of distressed there are over 50,000 available distressed properties in Maricopa County right now. they range from properties starting the foreclosure process, those listed for short sale, wholesale properties (those picked up by buyers at an auction), REO’s (real estate owned by a bank and for sale as such) and even conventional sale that are listed low to compete with the other distressed properties in the area.
Here is the key; it’s not important where the property is coming from or what state of affairs the property is in as long as the deal makes since. Don’t get caught up that since the property is a short sale or any other type of distressed condition that no matter what it has to be a great deal. Or since you are picking it up at auction it’s the cheapest price in the neighborhood. You still have to do you research and run the numbers. We had another gentleman come to our office here at Brewer Caldwell and he was very excited about buying some distressed loan right from the bank on a subdivision of properties the bank had taken back from a bankrupt builder. These properties where located in south Phoenix and averaged $120,000 per property from the bank, and at first it sounded great. The bank had a bankrupt builder and these distressed properties had to be a great deal, right? Well after looking at the properties and the location and taking into consideration that half of the subdivision was not built out then running the comps in the area it turns out that the properties are maybe worth about $90,000 per property on average. That is a $30,000 per property swing on 50 properties that is a 1.5 million dollar swing in the wrong direction. Yet this buyer wanted the deal because it was paper from the bank “it had to be a good deal”. Again don’t get caught up in the type of distressed property, get caught up in the details and the numbers.
Talking about numbers, don’t just consider the price. As I mentioned earlier so we can come full circle. There are houses for $60,000 and yes even cheaper I saw a property yesterday that was going for $30,000, yes $30,000 that’s less then some new cars. Here is the thing it may be cheap in price but what is it really worth and what will the price appreciate to over the next 5 years and what is your potential ability to resale the property and what do you have to do to get it livable right now? There is a lot to consider so don’t get caught up in a solitary fact that you are buying a property for $60,000 so it must be a good investment.
Over all be smart do your research and be open to all possibilities and you will find those distressed properties.
To learn more about real estate investing in Arizona and speak with the local experts, contact Brewer Caldwell at 800-834-9200. You can also check out our free investment webinars and seminars that Brewer Caldwell holds weekly for both the beginner investor, and the seasoned professional.
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