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All that glitters isn’t gold, and that’s most certainly true when it comes to the real estate market. Distressed assets and properties may not be the best looking, but there can be just as much reward in them as there is risk. If there’s a distressed property in which investors are thinking of investing, they’ll do well to temper their decisions with wisdom of the advantages and disadvantages of such properties.

Disadvantages

When buying a distressed property, there’s considerably more paperwork involved, which means there’s more time and energy involved. Investors should store up an abundance of patience if they are serious about buying up foreclosed or distressed properties.

Another downside to ramshackle properties is they are often found in less-than-desirable locations, which can negatively impact their overall value even when they are fully restored. On a related note, even when a property is fully restored, it could take several years before the market has improved enough to where buyers can make a profit on their investment, years that some might not have.

True to its name, a distressed home or commercial property demands a lot of work before it’s ready to be bought. Investors should have just as much money in their reserves as they do patience if they hope to turn distress into success.

Advantages

Some of the best real estate deals to be had are those on less-than-stellar properties. Investors and hopeful homeowners with an eye for potential can find a great match in distressed homes that have the makings of fantastic properties. Rather than using a lump sum of money on a single house in good condition, that money can instead be spent on two distressed houses that have high selling potential.

Imagine getting a good deal on a property and having to pay sky-high interest rates when it’s time to finance. Distressed real estate often comes with low interest rates, which can make monthly mortgage payments equally low. The money investors and homeowners save on the overall cost of the property and interest rates can be used to restore the home and make it habitable as well as profitable.

Time is both an advantage and a disadvantage. While it’s true that it might take a few (or several) years for the market to reach a level where an investor is ready to sell, that time can be used to ensure everything about the home is in the best condition possible, which positively impacts its overall value when it’s time to sell. One investor may not have the financial resources, patience or time another investor has, which can result in a hurried restoration done in anticipation of a quickly rising market. Impatience can lead to missed steps and missed profits as well.

Real estate professionals who aren’t afraid of a lot of hard work can be well pleased in their decision to buy a distressed property. That being said, there’s truly no way to predict the whims of the market or those of future buyers. These properties can be a coin toss and toe the line between profit and loss.

 

Sources

Investopedia

Photo

InToday