Question from reader: In flipping houses, what is the difference between distressed property and bargain property?
Answer from Jeanette Joy Fisher
Let's start with bargain property. Real estate investors make money when they find a bargain property which they can purchase for less than market value and resell or rent for profit. The key may be a "distressed seller" who needs out right away because of overwhelming problems like financial difficulties such as divorce, death, pending foreclosure, lack of money, job loss or transfer. Sometimes a seller wants to use the money to purchase another property and is willing to offer a bargain price to move on. Many investors who purchased at a deep discount can make a nice profit and turn the property to another investor for fast cash.
Find the seller's motivation and find a solution to buy a bargain property. Most often, the seller wants a fast escrow or closing. Some home sellers want fast cash to solve money problems and to rent back the house.
A "distressed property" is one that needs help to bring it up to saleable condition like a "doghouse," a dump, or a fixer. Owners of fixers are not always distressed sellers. They might not be in foreclosure or facing financial problems. They may just lack motivation or know-how to fix up the property and haven't sold it because most home buyers want a house in good condition.
You can make money buying both bargains and fixers. It depends on whether you want to find houses in good condition or fixers. Some investors only buy houses in prime condition from sellers who are willing to discount for a fast sale. In today's market, you must know how you're going to make a profit before you purchase a house. If you know the market is still active in your area and you have a strong chance of reselling in a couple months for full price with the right marketing strategy, you can make an offer that gives you plenty of margin.
If you want to turn a fixer into a new owner's dream home or rental, you must know how much the house will cost to fix. Many investors buy fixers with rehab funding and don't risk their own money. After fixing the house, they refinance and rent, take some profit out, and have the tenants make the payments. House flippers fix and sell right away for fast cash.
Of course, if you want to fix houses, you want to find a fixer that is also a bargain house for the highest return on your money and time.
Learn how to fix and flip houses with the interior design edge for higher profits.
Copyright © 2006 Jeanette J. Fisher
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