Defining Distressed Real Estate Investments

If you are planning on getting into real estate investing, then you should look at different options. You can start with a more traditional route, like commercial real estate investing or apartment rentals.

You can also go with lesser-known pathways like distressed real estate investment.

What is Distressed Real Estate Investment?

Distressed real estate investment is one of the lesser-known investment options out there. The term, however, can be a bit misleading. It does not refer to emotional distress, but it is actually a financial term that means an obligation that is likely to fall into default. 

There are different reasons for a loan being distressed. It can be caused by the financial situation of the borrower, the terms of the loan can be too much, or the economic situation that can just lead to severe financial situations.

Whatever the reasons are for the real estate investment to become distressed, the lender will properly start the foreclosure process to take over once the lender does default.

This is when the investor can come in and save the borrower from losing everything. Normally, an investor will purchase the property at a price that is lower than what it cost to acquire or build it.

A common misconception is that a distressed property means something that has structural problems or maybe something that’s old. That’s not always the case. A distressed property can be brand new. As long as the owner can not meet the financial obligation, then the property is distressed.

Pros and Cons of Distressed Real Estate Investment

Like other forms of investment, there are advantages and disadvantages to distressed real estate investment. We have made a list for both sides here.

Pros of Distressed Real Estate Investment

The primary reason why many investors choose to invest in distressed property is because of the lower prices. Owners will be willing to let go of their property, even if it is lower than the market value, and risk losing everything.

Whether it’s vacant land or a building bought at an estate sale, you can bet the price of the property is lower.

Then there is the potential for higher profits when you acquire a distressed property. Buying one even if it needs work and selling it at a higher market value is an attractive enticement for many investors.

Banks are also open to giving good financing options to distressed property investments.

Cons of Distressed Real Estate Investment

Now, it’s time to look at the downsides connected with this form of real estate investment.

First is the competition—even though it is now as common as other forms of property investment, there is stiff competition when it comes to distressed real estate investment. Investors are attracted to the prospect of high returns that these types of properties can get.

Then there is the condition of the properties in question. We have discussed that it is a common misconception about these properties that they will have issues with their condition. While it is possible for a new building to be distressed, it is usually the older ones that fall into this category.

You may end up buying a property as is and be required to spend a substantial amount getting it in the condition to sell it.

Finally, there is the issue of location. At the most, a property owner cannot pay his debt because the occupancy rate is not what was expected. This is normally caused by the bad location of the building, making it inaccessible to the target market.

You could end up inheriting that issue when you take over the building. Unfortunately, there is no solution to that kind of problem.

Get Started Now with Distressed Real Estate Investment

This is the right time to get started with distressed real estate investing. You can look for properties that fall into this category and start doing your research.

If you don’t have all the information you need to get started with real estate investing, it would be best to get help from experts, and our team can help. We can guide you on your journey to learn real estate investing and commercial real estate investing. Contact us at 949-881-7128 or email us at today!