Over the past few months, I have been discussing the considerations for someone who may be interested in purchasing a distressed property or foreclosure in the Dayton area. This blog series took a closer look at a topic that is relevant to our area because, in my opinion, many see our city as having opportunity for investment in foreclosures and distressed properties. While there may be challenges to investing in such properties, many make money doing so.
This series covered topics meant to assist individuals who may be considering an investment in troubled real estate. Topics which this series looked at included:
- Investing in Dayton foreclosures vs. turnkey units
- The inspection process for Dayton-area distressed properties & foreclosures
- Purchasing a Dayton property that is owned by HUD
- Making an offer on a non-HUD Dayton foreclosure
- Paying for and financing distressed properties or foreclosures in Dayton, Ohio
I chose to write this series because there are important areas to consider when you begin the process of investing in real estate, especially in distressed properties or foreclosures. As a real estate agent, and an investor myself, I think it is important to first understand some of the major differences between investing in property that is troubled versus a turnkey piece of property. There are some pros and cons to investing in a troubled property. You may have the potential to yield a high monthly profit from rent, but only if you have the correct location, financial situation, and contractors in line to make any necessary repairs. Likewise, it is easy for an investor to get in over their heads when dealing with distressed units. The decision as to whether one should buy distressed investments is, therefore, complicated.
If you do place an offer on a property that is distressed or in foreclosure, then it is important to understand how the inspection process differs from that of conventional properties. The standard process during a property purchase is to perform a whole house inspection, but with troubled units that is not always possible since the utilities are typically not on in such buildings. This limits the inspector’s ability to inspect the electrical outlets, water systems, furnaces, and more. What is sometimes better than hiring an inspector in this situation is to hire a general contractor to assess the property. This will help you estimate not only needed repairs, but also the cost associated with those repairs.
Another possible scenario is that a distressed property or foreclosure may be owned by HUD, and not a private seller. The U.S. Department of Housing and Urban Development (HUD) sells homes that are sold after an owner defaults on an FHA loan. When this happens, HUD will resell the property and try to recoup as much of the loss as possible. One benefit to purchasing a home owned and being sold by HUD is that they may be in fairly good condition, because FHA loans require homes to be in such condition. My article on HUD-sold homes also discusses how to search for homes using the HUD website and the rules for bidding on a HUD home.
It is also important to consider the process of purchasing a home that is a non-HUD foreclosure. While the offer process itself may seem very similar from the buyer’s standpoint, each institution that owns the property may have different procedures. Additionally, getting responses to your offer on foreclosures has a slower turnaround time, sometimes up to a number of weeks. Also, cash buyers will have preference in foreclosure situations because it closes out the transaction more efficiently and helps the owning entity to net the most money. These are some differences between purchasing a typical home and one that is distressed or in foreclosure.
Finally, many distressed properties are purchased using cash. However, there are some alternatives to cash, including hard money loans that require a buyer to find properties that fit specific criteria, including a specific cap on how much repairs will cost, and a specific valuation that the property must meet after repairs are made (ARV or after repair value). Another option is a rehabilitation loan, in which the buyer will be required to obtain the estimates from at least two contractors that the bank approves. Finally, a conventional loan may be an option if the home is habitable and insurable and needs more cosmetic repairs.
If you are considering purchasing a distressed property or a foreclosure in Dayton, Ohio, then contact me to speak with a real estate agent. It’s my goal to provide a high level of service and move forward with your investment decisions. In addition to Dayton, I also service the areas of Beavercreek, Centerville, Clayton, Englewood, Oakwood, Fairborn, Harrison Township, Huger Heights, Kettering, Miami Township, Miamisburg, Riverside, Springboro, Trotwood, Vandalia, Washington Township, West Carrollton and Xenia.
Note & Disclaimer: Nothing in this article, or on this website, should be construed as investment or financial advice. The opinions shared on this website are the personal, and not professional, opinion of the author and are not associated with Keller Williams Advisors. Any investment decisions should be made after consulting with a certified financial/investment professional.