Get started with distressed Real Estate investment

Blog March 2024

Making a distressed real estate investment can be a lucrative endeavor, but it’s not without risk. Before you decide to invest in a property that is facing foreclosure or has been through a short sale, it’s important to understand what you’re getting into. In this blog by professionals at GCG Real Estate, we will teach you everything you need to know about succeeding with distressed real estate investments.

What you need to know

So whether you’re just starting out in distressed real estate investing or you’ve been at it for a while and are looking to take your investment portfolio to the next level, this blog is for you! You can give us a call and we’ll take you through how we can assist you in flipping properties through decades of professional experience accumulated by our experienced team.

What is distressed debt?

In order to understand distressed real estate investing, you must first understand what distressed debt is. Distressed debt is defined as a financial obligation that is at risk of default.

This can be due to the debtor’s financial situation, the terms of the loan, or other factors. When a debtor is unable to make payments on their distressed debt, they may be forced to sell the asset (in this case, the property) in order to satisfy the debt.

A distressed mortgage is a type of distressed debt that occurs when a borrower is unable to make payments on their mortgage. When a borrower defaults on their mortgage, the lender will begin the foreclosure process.

How to find distressed properties

There are a number of ways you can go about looking for distressed real estate investments. If you’re wondering how to buy distressed real estate debt;  the most popular methods that investors use are listed below:

Search on the MLS

The MLS is a good place to start your search for distressed properties. You can search for properties that are in foreclosure or have been through a short sale.

Real estate agents will generally walk you through the multiple listing service. GCG Real Estate suggests that you try to find properties listed for 90 days or longer as those are the sellers willing to negotiate the most!

Tax delinquencies

Another great place to find distressed properties is through the tax delinquency list. This list will contain all of the property owners in your area who have not paid their taxes.

You can access this information through your local county assessor’s or treasurer’s office. Anyone who isn’t paying their property taxes is at the risk of being foreclosed and is more than likely motivated to sell their property.

Reach out to a Bank

If you’re having trouble finding any distressed properties on your own, try reaching out to a bank. Banks are always looking to get rid of their non-performing assets (NPA).

They may be willing to sell the property at a discount in order to get rid of it quickly. Bank-owned properties (REO) are the very first to be put up at auctions. You can visit websites of different banks and find REO properties through various listings.

Drive around

The best way to find potential distressed real estate investments is to drive around different neighborhoods and look for For Sale by Owner (FSBO) signs, or houses that are in disrepair. Many times, these properties will be the ones that have been foreclosed on or have gone through a short sale.

Benefits of investing in distressed Real Estate

There are a number of benefits that come with distressed real estate investments. Purchasing an REO property will not only allow you to diversify your portfolio but provide the potential for higher returns.

However, your seller will be the bank, and that’s not necessarily a disadvantage as the bank will more than likely clear any tax discrepancies from their end.

Distressed properties are generally a haven for flippers. If you invest wisely in renovation (which can be more depending on the condition of the property you purchased), you can definitely profit more compared to the more conventional methods.

If you’re thinking about investing in distressed real estate, make sure to do your research and due diligence first. There are a number of risks that come with this type of investing, but if done correctly, it can be very profitable. 

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FAQ

Any questions

What is affordable housing?

Affordable housing refers to housing units designed to be accessible to low- and moderate-income families, typically costing no more than 30% of their gross income.

The definition of “affordable” typically varies depending on location and income levels but generally encompasses rent or purchase prices that don’t exceed a certain percentage of a household’s income.

What is Section 8 housing in the US?

Section 8 is a federal rental assistance program in the US run by the Department of Housing and Urban Development (HUD) that helps low-income families and individuals afford decent and safe housing in the private market. 

The program provides eligible households housing choice vouchers that cover a portion of the rent directly to the landlord, with the tenant paying the remaining amount. Property owners who participate in Section 8 agree to rent units to qualified individuals and families at a rate approved by the program.

How can I invest in Section 8 housing?

There are several ways to invest in Section 8 housing:

  1. Direct ownership: You can purchase a property approved for Section 8 and rent it to a qualified tenant using a voucher and receive rent subsidized by the government.
  2. Real estate investment trusts (REITs): REITs pool investor funds to purchase and manage income-producing real estate, including affordable housing.
  3. Limited partnerships: Limited Liability Companies (LLCs) offer another option for investors to pool resources and invest in affordable housing projects.
What is the difference between multi-family and single-family properties?

Single-family property: This refers to a standalone house or unit designed for and rented to one household.

Multi-family property: This refers to a property containing multiple dwelling units, such as a duplex, apartment building, or condominium complex. Multi-family properties offer the potential for higher rental income but typically require different management strategies and considerations compared to single-family homes.

What is the difference between buying and flipping houses?

Buying and holding: This involves purchasing a property to keep it as a long-term investment, generating rental income and potentially appreciating in value over time.

Flipping: This involves buying a property, renovating it to increase its value, and then selling it quickly for a profit. This is a more hands-on strategy with higher risks and rewards compared to buying and holding.

How much do I need to start investing in affordable housing real estate?

The minimum investment required varies depending on the chosen method. Direct ownership typically requires a higher initial investment for the property purchase, and renovation up to Section 8 standards, while other options like REITs might have lower minimum investment amounts.

Do I need to be a US citizen to invest and own the property?

No, US citizenship is not a mandatory requirement for investing in affordable housing in the US. However, specific restrictions or regulations might apply depending on the investment method and your residency status.

It’s crucial to consult with a professional to understand the legal and tax implications for non-citizens.

Do I need to pay US tax as an overseas investor?

This depends on the type of investment, your residency status, and any applicable tax treaties between your home country and the US.

Consulting with a tax professional specializing in international investments is highly recommended.