9 Ways to Find Distressed Properties

Real Estate Investing6 min read

Investing in distressed properties provide many advantages for real estate investors — if you know how to find them.

Johnpaul Moses
Johnpaul Moses

Unlocking the vault of real estate gold can be both thrilling and intimidating. 

And when it comes to distressed properties specifically, the investment game requires a mix of savviness and grit. So if you’ve been wondering how to find distressed properties, sit tight… 

This comprehensive guide will show you the ropes, from identifying the types of distressed properties to mastering the art of sourcing them. 

Let’s decipher the process together. Giddy up!

What Are the Types of Distressed Properties?

The term “distressed properties” can cover a variety of situations, each offering its own unique set of opportunities and challenges. So before we look at how to find distressed properties, let’s broaden our understanding of the different types of distressed properties, giving us a competitive edge in finding just the right spot to wield our investment pickaxe.

Foreclosures

When homeowners fall behind on their mortgage payments, financial institutions don’t dilly-dally. Once the mortgage is sufficiently delinquent, banks or mortgage companies initiate a legal process to reclaim the property.

Essentially, the bank becomes the new homeowner in this part of how to find distressed properties. These properties, also known as real estate owned (REO), are usually vacant, giving you a faster route to the closing table.

Pre-Foreclosures

On the road to how to find distressed properties, you’ll come across pre-foreclosures. It’s the period before the bank rolls out the formal foreclosure wagon. During this time, the property title is still with the homeowner, but the clock is ticking due to their late mortgage payments. Eek.

The good news? 

No need for bank approval to close the sale. The caveat is that you need to act swiftly… otherwise, the property will transition to a full foreclosure.

Tax Liens

Next up in our guide of how to find distressed properties — tax liens. These are properties shackled by unpaid taxes. While this signals a financial distress flag for the homeowner, it marks an opportunity for you. 

County tax records are your best friends in identifying these properties. But remember, where there’s a tax lien, there are often other financial skeletons in the closet.

Probate Sales

When a property owner dies, their estate often needs to liquidate assets to pay off lingering debts. Enter probate sales. While this could mean a property selling below market value, navigating the probate legalities can require extra attention to detail.

Short Sales

In a short sale, the property is sold for less than the remaining mortgage balance. Typically initiated due to financial hardships like job loss or divorce, these sales require the lender’s nod of approval. 

The trade-offs? 

First, the sale is generally “as is,” meaning don’t expect any repair credits. Second, short sales usually come with a built-in delay as lenders meticulously review the deal. Patience is your virtue here.

Physically Distressed Property

Sometimes, the distress is not financial but physical. These are homes requiring significant renovation, often sold by absentee owners or an estate. Before jumping in, make sure the property meets your mortgage lender’s condition guidelines and that you’re up for the renovation undertaking.

So…

By familiarizing yourself with these categories, you don’t just sharpen your strategy — you arm yourself with the tools to dig up the best distressed properties on the market. 

Now, what’s next in our guide to how to find distressed properties?

The actual finding, yay!

9 Ways to Find Distressed Properties

So far, we’ve seen what constitutes “distressed properties,” and it’s clear that the term isn’t confined to a singular mold.

With that in mind, what are the best ways to find properties in all these varied forms?

Well, let’s take a looksie at how to find distressed properties.

1. Drive for Dollars — Neglected Properties

Yes, it’s as simple as it sounds. 

One of the best methods for how to find distressed properties is to drive around neighborhoods and look for signs of disrepair or neglect. We’re talking unkempt lawns, boarded-up windows, and the like. Keep your eyes peeled… you could be the first to spot a gem in the rough.

2. Tax Records

Public tax records are a treasure trove in how to find distressed properties. Overdue taxes are often a red flag. Check with your local tax assessor’s office for a list of properties with delinquent taxes.

3. Delinquent Mortgage Payment Properties & Bank-Owned Foreclosure Properties

Mortgage records are accessible through your county clerk’s office. You can find out how to find distressed properties by seeking out those with missed mortgage payments, which often precede foreclosures. Bank-owned properties are usually listed on banks’ websites or through local real estate agents.

4. Probate

Knowing how to find distressed properties can extend to probate court records, too. Estates often include real estate that heirs might be eager to offload. Keep an eye on probate announcements in local publications or directly through courthouse records.

5. Property Auctions

Auctions can be a quick way to acquire distressed properties. Listings for these auctions appear in local newspapers and online platforms like Auction.com or RealtyBid.com. Just remember, auctions often require cash payment on the spot.

6. MLS

The Multiple Listing Service (MLS) is a hotbed when it comes to finding distressed properties. 

So, why not partner with a real estate agent and ask him/her to sift through the MLS data for properties with longer-than-average time on the market or those listed multiple times? 

They may just turn up an ideal property for you. 

And, since we always want to make situations win-wins for everyone involved, should you come across properties that don’t make sense for you as an investor or perhaps need an agent’s involvement, you could offer to pass them on to your agent partner who may be able to take the deal and any commissions that could come along with it. Boom!

7. Online Marketing & Searching

You might not know it yet, but various online platforms specialize in distressed property listings. Websites like Foreclosure.com or RealtyTrac offer databases for your perusal, albeit sometimes for a fee. These sites can be particularly useful for remote investors.

8. Direct Marketing

What is direct marketing in finding distressed properties? 

Think mailers, postcards, or online ads aimed at homeowners in financial distress. This proactive approach can absolutely yield great results… but it also requires a substantial investment in marketing, so this option isn’t suited to everyone.

9. Network with Wholesalers

Wholesalers are the matchmakers of the real estate world, and they can help you learn how to find distressed properties. 

See, they put distressed properties under contract and look for investors to take them over. Building relationships with wholesalers can fast-track your distressed property acquisition.

Pros & Cons of Investing in Distressed Properties

Knowing how to find distressed properties comes with pros and cons. Let’s take a moment to break them down.

Pros of How to Find Distressed Properties

  • High profit potential
  • Lower purchase prices
  • Less competition

Cons of How to Find Distressed Properties

  • Time-consuming search process
  • High-risk factors such as property condition
  • Requires significant up-front capital

Funding Distressed Properties

It’s not just about how to find distressed properties… it’s also about funding them. 

But in the quest for distressed properties, traditional mortgages often shy away from them, pushing investors toward alternative routes. Hard money loans are a go-to, offering quick but high-interest financing. 

Private lenders are another option, offering customized terms. 

Crowdfunding platforms are the new kids on the block, pooling funds from multiple investors. 

Each method has its own pros and cons, making a diversified approach wise. Try ‘em all out and see which ones you like best.

Main Takeaways for Finding Distressed Properties

In the journey for how to find distressed properties, the avenues are as varied as they are fruitful. 

As we’ve seen, each method has its perks and pitfalls, so a blended approach often works best. 

But remember, while the road to finding distressed properties can be winding, the destination — potentially high returns — might just be worth it.

Happy hunting!

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