Distressed Properties - Things You Should Know before Investing

 Distressed properties include houses that are about to be foreclosed, or under foreclosure, because of the inability of the owner to meet the terms of their mortgage or property tax bills. A property could also become distressed because of a liquidation that occurs during a divorce or bankruptcy.

Sales of distressed properties became commonplace in the late 2000s, and from 2008 to 2011, a significant portion of the homes sold in the US fell under the distressed property category. However, in recent years, the sales of distressed properties have dropped significantly, despite predictions from real estate experts such as Charles Koch that the sale of distressed properties would increase in 2021.

But even with the current state of the distressed property market, investors can still make solid profits from these investments if they understand certain things and take certain steps. One such step is to properly study the area where the distressed property is before investing, and avoid buying properties in areas in decline.

This is because buying a property in an area with falling real estate values, or an area where many of the residents are moving out, is a very risky move. Investors who make such a purchase might end up holding onto the property much longer than they wish after they renovate the building, as the neighborhood might not be enticing to new buyers.

After the investor studies the neighborhood of the property and deems it worthy of an investment, the investor then needs to get a professional inspector to carry out a thorough inspection of the property before going ahead with a purchase. This inspection should give the investor a clear picture of the state of the property, the repairs the property needs, and provide a rough estimate of how much the investor will need to spend to get it into good condition.

Also, the investor should hire specialized inspectors to check for pest issues and mold, assess the property’s septic system, and look for other issues that might be hard for an untrained person to detect. This is important because a typical inspector might do a general inspection and overlook some issues that could become major problems for the investor later on.

Additionally, investors should ensure they have a clear budget for both the purchase and the renovation of the property. This budget should be carefully set up to ensure that the investor can achieve their goals with the property they purchase without putting a strain on their finances. Investors should also avoid purchasing properties at a price that forces them to go above budget, as this could affect the amount of capital the property requires after purchase.

Finally, investors should ensure they have a solid exit plan in place before heading into a distressed property deal. This is because real estate investments can be very capital intensive, and distressed properties are even more capital intensive than most real estate deals. As a result, investors should be careful with how much money they invest in a distressed property, and should set a limit on how much they will spend before exiting the deal permanently. While exiting a deal prematurely would most likely mean a loss of capital for the investor, it could also be a good strategy to avoid a significant loss that could limit future investments.

Why You Need a Real Estate Attorney

 Real estate investment is one of the biggest investments an individual can make today. However, like every facet of human endeavor, real estate is guided by rules and procedures that ensure fairness and equity for all stakeholders in the sector. So, it is advised not to commit to investing in real estate without consulting a real estate attorney. In addition to the sale and purchase of land, real estate attorneys specialize in deeds, titles, property taxes, zoning, and estate planning.

First, having a real estate attorney while investing in real estate is a statutory requirement across most states in the United States. They often require that your attorney be present during the closing of any real estate deal. Closing is the last state of any real estate agreement at which the seller transfers the property title to the buyer.

Before closing, your attorney is responsible for analyzing all the necessary documentation in advance and offering you advice in case there are loopholes. During closing, both parties exchange legal documents and review them in a bid to sign off the purchase process.

Furthermore, real estate attorneys are usually responsible for going to the land registry to conduct a title search and ensure title insurance. The title search is important because it helps the potential investor to determine whether there is an existing lien or claim over the property. When a title search is done, a real estate attorney can help resolve any future encumbrances that might arise over your property.

On the other hand, title insurance protects you from unforeseen financial loss from purchasing a property. This is important because an oversight committed by your attorney during a search or a yet-undiscovered lien or claim might arise in the future. Title insurance could protect you from these when they arise.

Compared to a typical residential property, commercial properties are substantially larger. They frequently include complex legal difficulties like an easement, corporate ownership, joint tenancy, and leasehold issues. To ensure that you are fully aware of the terms of the acquisition or purchase agreement, your real estate attorney can draft a deal that considers these and other concerns.

Negotiation is the forte of most real estate attorneys. When you pay a real estate attorney to represent you in a real estate transaction, they will likely negotiate the best deals for you. They can guide you step-by-step through the intricacies of every real estate transaction you're about to enter. They ensure there are no loopholes in your offer, and they review to ensure you do not accept difficult terms or clauses.

Finally, landowners must follow building code requirements from the state and municipal government while making improvements. Work performed without the appropriate permits may be regarded as unlawful. You can better grasp the intricacies of illegal improvement by speaking with real estate attorneys. They can clarify any possible future liabilities resulting from the unauthorized improvements. An attorney can advise you on your options for possibly litigating for damages or canceling the purchase agreement if the illegal alterations are too expensive to fix or interfere with your enjoyment of the property.