In last week’s blog, we talked about diving into the pool of distressed real estate. I’ve been working with an investment firm that buys distressed properties in huge lots and resells them in groups of 15 to 20. You don’t get to pick which properties you get, but chances are that, even if some are worthless, the potential profit from the others would more than cover the clinkers.
If you’re practical, though, you probably wondered just where the potential profit comes from, especially when we’re talking about properties that could be anywhere in the U.S. So this week, we’ll talk about six ways to profit from your package of homes, while preserving your opportunity for a big upside.
Sell to a local investor. Distressed or not, there’s still profit left in many of these properties. Whether through a classified ad or by contracting with a local real estate office, you can sell them almost immediately to local investors. Look for local investors who already know the neighborhood and who can pay cash so there’s no mortgage paperwork involved. We’re not talking about a lot of money. In some severely depressed areas, such as Detroit or Newark, it’s not uncommon to buy individual properties for $500 to $1000. Because they’re local, these investors are willing to fix the properties up and flip them themselves.
Sell to renters looking to buy. In some parts of the country, there are renters who are looking to take advantage of this down market to get into real estate and have monthly payments for less than the local rents. These are people who have the resources and skills to do repairs on properties, and are willing to get sweat equity. You can handle these transactions with what’s known as a contract of sale, which is different than a deed of trust, the traditional method of buying a home. The contract itself holds the value, not the property itself, and it’s basically an agreement that the buyer gets the property once they’ve paid the debt on it.
Hire a local contractor. If the property is in fairly good condition, you can hire someone to do any basic repairs, and then sell it through traditional channels. Out of a portfolio of 20 properties, this isn’t likely to be the case for more than one or two of the properties.
Hire a local agent. I’ve encountered another national company that, for $250, will go onto a property, take pictures, deliver an inspection report, detail what’s missing from the house, put a lockbox on it for local access, hoist a “for sale” sign where it can’t be stolen.
Take the loss. Even if the property is worthless, you can turn around and sell or transfer the title to companies that specialize in junk properties. It gets the liability away from your name, and you get a deduction.
Offer It As A Rental. One investor who worked with the company that creates the pools of distressed properties found himself with a condo in California that was not only in pretty good shape, but was probably worth $45,000; he’d paid $9100 for it as part of the pool. He rented it out for $650 per month for about six months, until the renter offered him $38,000 for it.
