In the world of real estate investing, opportunities can be found in unexpected places. Distressed multifamily properties can stand out as hidden gems and become potentially lucrative ventures. These properties which are often facing financial or structural challenges, can be turned into profitable investments with the right strategy and mindset. In this blog, we will be exploring how to find distressed multifamily properties and how you can turn them into profitable investment opportunities.
What Are Distressed Multifamily Properties?
A distressed property is a building that is facing financial, operational, or structural challenges. They may be in the process of foreclosure, suffering from negligence, or tend to have a high vacancy rate. As real estate investors, once you find distressed multifamily properties, you will need to acquire and renovate these assets to increase their value and restore their income potential.
Why Choose Distressed Multifamily Properties?
- Cheaper to purchase – Distressed properties can often be found priced below market value.
- Freedom to rehabilitate – By working on strategic renovations and improving the management of the property, a distressed property can be fully revitalized.
- Scaling portfolios – If you add distressed multifamily properties to your real estate portfolio, you can diversify your range which can even help weather tough economic conditions if they arise.
- Becoming socially responsible – These rehabilitated properties can add to the availability of affordable housing in the local community.
Finding A Distressed Property
1. Checking Lists of Foreclosures
Monitoring foreclosure listings is a great way to find new distressed multifamily properties in a specific area. People who utilize these listings are often motivated sellers who are looking to make a quick sale of the distressed property.
2. Working With Other Real Estate Agents
There are experienced real estate agents who tend to specialize in specific areas, even distressed properties. They will have access to networks in the industry and news about new properties being listed on the local real estate market. You can work with these agents to identify opportunities you can act upon.
3. Searching Through Online Listings
This process will involve exploring online real estate listings and platforms that are specifically tailored towards distressed properties. Some of these websites include foreclosure.com and auction.com through which people can list any of their distressed properties. You will need to check them often to avoid missing any potential new entries.
4. Uncovering Information Through Public Records
Public records, such as tax delinquency lists and court filings, are another method you can use to identify properties with financial distress. While these may not always provide results, they can point you in the right direction to start looking.
5. Scouting By Driving Around Neighborhoods
Most distressed properties will have signboards posted outside mentioning that it is up for sale. By physically exploring neighborhoods, you can look for these signboards which are often large and attractive. Additionally, you should also look for other signs such as boarded-up properties, neglected landscaping, or visible maintenance issues which could end up being a potential lead.
6. Connecting With Local Professionals
Most local communities will have their fair share of property management companies, contractors, and real estate professionals. They are major players in the local real estate market and will have insider knowledge about multifamily properties. You can network with these people and keep an ear out for those properties that are in need of rehabilitation.
7. Making Use Of Local Government Resources
Depending on the location, there are some local governments offer programs that incentivize the revitalization of distressed properties. If you’re within these areas, you should definitely explore these resources as they can be even more lucrative opportunities offering you cheaper initial investment rates.
8. Attend Distressed Property Auctions
This is a last-ditch effort since the chances of finding a good property can be low, but participating in distressed property auctions can sometimes be useful. These auctions can sometimes feature properties that are in decent condition to be revitalized rather than have to be rebuilt completely.
What To Do After Finding A Distressed Property
1. Acquiring Finance for Renovation
There are financing options that are tailored specifically to the rehabilitation of distressed properties. These include renovation loans or hard money loans which can be helpful since they are easier to acquire for this specific reason.
2. Make Sure To Investigate Thoroughly
Before you move on to the actual process of purchasing the property, you need to do your due diligence and conduct a thorough investigation. This means inspecting the property, auditing the financial records, calculating the renovation costs, and finally analyzing its potential for rental income.
3. Checking For Legal and Zoning Compliance
Every location will have its own local zoning laws and regulations. When you’re planning for renovations, you will need to be compliant with these laws. It’s best to have the property vetted by a professional to ensure that you will not be violating any of these laws which will put your investment off to a bad start.
4. Choosing Property Management
Property management is an important step once the renovations are complete. However, you shouldn’t wait until then to get started on this step. You should take the time to develop a comprehensive property management plan to address tenant turnover, maintenance, and ongoing improvements.
Finding a distressed property is not always as easy as checking property listings on a daily basis. Because of their potential for investment, these properties can quickly get off the market, so you will miss out unless you have your ears out for quick purchases. Whatever the case, always make sure you do a proper investigation into any distressed property to ensure that your investment does not go belly-up after you’ve financed it.