If you’re like many people, you know one of the hardest aspects of real estate investing is finding distressed properties that are actually a good fit for you – but if you’re new to real estate investing, you may not know what a distressed property is. So what is a distressed property, and why would you want one?

This guide explains. 

What is a Distressed Property?

A distressed property is a property – typically a single-family home, duplex, triplex, fourplex or other multi-unit property when it comes to real estate investing – that the current owner can’t or won’t maintain. That’s true in a physical sense (meaning that the building is in need of repair) and in a financial sense (meaning that the property owner hasn’t kept up with mortgage obligations and is at risk of falling into foreclosure). 

Related: What’s a tax sale property?

Why Are Some Properties Distressed?

Generally, distressed properties are in the condition they’re in due to finances. Often, the owner doesn’t have the cash to make repairs or pay the mortgage, which can lead to a downward spiral. These properties can be great finds for enterprising investors, though.

Why Do Investors Want Distressed Properties?

Many distressed properties sell for bargain prices. If you can pick up a distressed property at a great price, fix it up, and sell it (or rent it out) at a fair market price, you stand to make a significant profit.

Related: How much do home additions cost?

What Risk is Involved With Distressed Properties?

There’s significant risk involved in buying a distressed property. One of the biggest risks is that the building needs more repairs than you bargained for – and making those repairs can cut into (or even eliminate) your profits.

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