I found an interesting post on these so-called “distressed” properties. Now, I believe that most of the time these properties are listed for sale, and the verbiage “short sale” or “foreclosure” is placed in the description, it is actually true. However, look at what Teena Cobb says in her article demystifying these “distressed” properties:
Fact: Homes that are priced competitively may be a better investment than some short sales or foreclosures. Homes listed as short sales may be priced higher than comparable homes in the same neighborhood because the banks use a percentage of what is owed on the home to determine how low they can go in a short sale. Likewise, a foreclosure may end up being a money pit that you end up spending more than comparables to get it move-in ready.
This is interesting to me, and I think you should take it in consideration. The bank prices the home based on the money owed on the mortgage, not the home’s value. This is critical when you are considering investing in these types of properties. But even still, you have to know what the property is worth, what money you’ll have to spend to make it ready to rent or sell, any other costs like closing costs, etc.; and then subtract the profit you want to make from that number in order to get your offer price.
All in all, you still have to make sure you follow the Magic Pill of Real Estate Investing (buying right), or you won’t make any money.