Let’s evaluate the advantages and disadvantages of dealing with distressed properties or what some will call “cheap” houses.
Understand, first, that the price of the property may be attractive, but you’ve got to know what you’re buying, the physical opportunity surrounding the property, as well as the financial. You must run your numbers before being able to tell if the distressed, cheap house is truly a deal.
While the low prices may be enticing, that could be an indicator that the property is in poor condition. You may find the price tag attractive, but what if the property is deplorable or has inhospitable conditions? You may create more time or work for yourself, and it may cost you more money. If you think the price of education is expensive, wait until you get the bill for ignorance. If you go into this blindly, you may think there are just some minor repairs on the surface, but what if you must purchase appliances? Make major plumbing repairs? What if you find mold? Outdated electric? Foundation issues? Unexpected repairs can cost you a lot of money for renovations and even then, there is no guarantee you’ll sell the property. Not to mention, if the property is priced so cheap, there could be increased competition. It’s always good to know multiple exit and entrance strategies in the event that there is increased competition and/or difficulty selling the property afterwards.
While the low price of distressed properties catches your interest, that isn’t always the only advantage to purchasing. It’s common that the property is not only cheap, but also listed below market value which means you may be getting a leg up the day you buy. There is also a huge area of opportunity to maximize your profits if you can fix and flip the house, especially if it’s in an area with high profit potential. If you find that it is a distressed property, that may mean it is bank owned which could mean a greater opportunity to get it financed since the lenders don’t want to keep nonperforming assets on their books.
No deal is the same, but if you take into consideration the pros and cons of each deal at hand, you may be able to minimize your risk and your mistakes.
Big picture takeaway points
Self-reflection questions to think more about the content
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