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Risk and reward bags on a basic balance scale in equal position. risk management concept, depicts investors use a risk reward ratio to compare the expected return of an investmentThis is the next article in my series on investing in distressed properties or foreclosures in the Dayton, Ohio area. My last post provided an overview of topics which this series will be addressing. I decided to write on this topic due to the fact that, as a real estate agent who deals with many investors, I am often asked about the possibility of investing in such properties. I have also sold many units which fall into this category. In this article I’m going to address the first question many investors have – whether to put their money into distressed units or properties that are considered “turnkey.” As I will explain below, there can be pros and cons to both. If you need assistance then contact me today to speak with a realtor.

Dayton investors may be able to see high returns from distressed properties or foreclosures

The benefits of acquiring a distressed apartment building, duplex, or single family home is obvious. If a unit can be acquired and renovated for the right price then one may end up with a quality unit at a cost that is less than something new or otherwise turnkey ready. Once rented out, such a unit can provide a good monthly yield. It is important to understand, however, that there are several factors to consider before putting in an offer on a troubled property. These factors can include the need to properly evaluate the amount of work the property needs, making sure that one is capable of doing the work or that contractors can be lined up, and evaluating the neighborhood that the property is in. I will discuss each of these factors in turn.

Any time an investor is considering purchasing a foreclosure or otherwise troubled property, it is important to have as accurate an idea as possible as to what renovations are going to cost. Failing to do so can result in one getting in over their head and having to put far more money into the property than they originally planned. It is important to find out as much about the history of the building as possible and to work with a qualified contractor who can give an assessment of what the unit(s) will need. Once an outline/estimate of the property’s needs is put together, one can then run the numbers. Dividing the likely monthly rent by the sum of the property’s acquisition cost and needed repairs will result in the potential monthly return on investment. It is typically suggested that investors include a “cushion” in any repair estimates as the final total is often more than the initial assessment of what the property needs.

The second important factor when acquiring such a property is to ensure that one has competent and reliable contractors lined up or that the work can be done personally. America has been facing a skilled labor shortage for several years and Dayton is no exception. Contractors are often booked out in advance or are otherwise difficult to schedule. This is an issue I run into often with my personal investments. If you acquire a distressed property and then do not have the contractors available to do the work, then you may spend a great deal of time sitting on units which cannot be rented out due to their condition. For obvious reasons, this can be devastating to an investor. I would strongly suggest making sure that you have the individuals who will be doing the work ready to go before purchasing a troubled unit.

A third factor to consider is the area which the unit is in. It is common for distressed properties to be in areas which are struggling. Dayton, especially in its west area, has multiple neighborhoods in which there are several distressed properties and other boarded up buildings. In 2020 I have sold several of these units as certain areas have begun to rebound in recent years. If one purchases a distressed property, and then rennovates it, in an area which is improving then the return on investment can be quite high. Picking a unit in an area that is struggling, and not likely to rebound however, can result in a poor investment outcome. Choosing a real estate agent, who is familiar with our local market, can help to ensure that the pros and cons of a given area are discussed.

Dayton investors should weigh the pros and cons of a distressed property against those of a turnkey unit

The issues discussed above are just some of the things to be considered when dealing with distressed properties. When acquiring a turnkey property, however, the process can be much more straightforward. The home inspection process can be better utilized to help ensure that there are no hidden surprises in terms of needed repairs. This allows for the process of calculating ROI to be less complicated. Also, turnkey units can be rented out much more quickly as they will not require lengthy and time-consuming renovation. Finally, more desirable areas are likely to include a higher number of turnkey homes. This means less speculation as to whether or not an area needs to rebound. All of these benefits, however, come with the cost of paying more for one’s units. Given that investments are about dollars and cents, the pros and cons of each approach must be considered.

If you are considering purchasing a distressed property, then it is strongly suggested that you work with someone who has experience in dealing with such units. I am a Dayton real estate agent who has assisted both buyers and sellers when it comes to these types of transactions. I pride myself on providing a high level of service and I look forward to speaking with you. Contact me today for assistance.

I also service the areas of Beavercreek, Centerville, Cincinnati, Clayton, Englewood, Oakwood, Fairborn, Harrison Township, Huber Heights, Kettering, Miami Township, Miamisburg, Riverside, Springboro, Trotwood, Vandalia, Washington Township, West Carrollton, and Xenia.

Note: 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.