Buying distressed property: Factors to consider
Tuesday, 15 February 2011 9:09 AM
Despite the state of the global financial markets, some savvy investors have continued looking for ways to make a profit during these difficult times.
In overseas property, the best deals have typically been on distressed homes - that is, property where the original buyer has been unable to complete the purchase and thereby lost their deposit - or foreclosed properties, whose owners have been deeply affected by the economic crisis and, as a result, are desperate to sell their foreign property as quickly as possible.
Buying into this type of real estate can be highly profitable due to its capability to provide instant equity to investors. However, as well as its benefits, buying distressed property comes with risks. Stephen Anderson, managing director of Portuguese property company Infinito Real, advises that before buying a distressed overseas property, you consider the following:
- Work with a professional agent: To receive the highest discounts, you need to work with an estate agent who has strong relationships with developers and, also, the banks. This will also make it easier to find out about distressed properties that have gone on the market. Whatever the reason for the property being discounted, you should consider seeking the help from a professional who has real experience of dealing with that type of transaction.
- Consider the costs involved: Before investing in any type of property, find out everything you can about its condition, as it's important to understand the potential costs that are likely to be involved. This is particularly applicable with distressed properties, which are likely to require more work than non-distressed properties. Buyers may need to undertake repairs to the home, which can sometimes involve expensive structural issues which need solving. Therefore, purchasers should obtain several quotes for repair work to establish the extent of these costs.
- Attached debts: Check to see if you would be faced with the possibility of taking over the previous owner’s unpaid debts attached to the property, which have the potential to run into thousands of pounds and for which you could later find yourself liable for.
- Be realistic on price: A property in a unique location will always hold its value to a certain extent, so expecting to achieve a 50 per cent discount on a seafront villa is completely unrealistic. Research the surrounding areas and the values of similar properties.
Consider location: Some properties that are heavily discounted and offered below the market value are situated in less-popular locations. Although they can still constitute a 'good deal', the turnaround time and profit element will be impinged on. If you are looking for a buy-to-let investment, the location needs to appeal as a holiday let with easy access to local amenities.
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