The New Investor in Distressed Properties
The possibilities of making big profits in distressed properties has lured many new investors into the field. Many, surprisingly enough, are willing to risk financing these kinds of properties without the knowledge and expertise, much less the experience of the successful, long-time investor.
Frequently, these newcomers rely on “instinct” rather then on the advice of knowledgeable professionals, such as real estate agents and attorneys. Their hunger for quick, profitable deals and lack of true market knowledge most often leads to investments that either do not materialize, or turn out to be money-losing propositions.
These entrepreneurs often do not know of all the options an owner of a distressed property may have before actually being foreclosed, such as:
- If the owner is in a higher than debt equity position, but has fallen behind on payments to the lender, he may opt for a quick sale to get out from under the mortgage
- Deed in lieu of foreclosure – giving the deed to the lender – may avoid foreclosure, but is not the best of all possible options
- Short Sale: The borrower must convince the lender to allow the property to be sold, even if the sale price is less than what is still owed on the loan.
The borrower must additionally ask the lender to agree that no further action against the borrower to collect any balance still due on the loan- after the sale of the property – will be taken. The possible tax ramifications of such a sale may not leave the seller free and clear of all debt.
“Jumping” into a distressed property purchase, without a complete understanding of the process, and without a skilled advisory team is often a recipe for financial disaster.
Without these advisers, how will the new investor know the true market value of a distressed property, particularly in a difficult market such as the present?
Certainly, the new investor should be aware of the outlay of funds required-other than the purchase price- such as appraisals, home inspections, title searches, financing conditions, rehab and upgrade costs, etc.
Further investigation may be needed to uncover possible second or third mortgages, contractor’s liens, judgments, and so on.
Additionally, the new investor who finds a truly profitable investment, will rarely be the only one who knows about the property, and will quickly find himself up against the old pros, savvy, long-time investors with deep pockets, who will be difficult to compete with.
At this point, all we can say to the new investor is, do not take the plunge into distressed property investment until you have thoroughly familiarized yourself with the market in which you are playing. Put together the best advisory team possible, and make sure your funding sources will enable you to make the purchases that will make you the kind of money that drew you into this investment field in the first place.
If you have any questions about investing in Las Vegas Real Estate, feel free to give us a call at 702-376-0088.