Distressed property for my first investment?

Question

Hi All,

I'm on the hunt for my first investment property, it's taking more time than I thought, but that's perhaps because I"m too picky. I've tried to identifying cash flowing homes in the Charlotte market--which has proven to be difficult. One option that I haven't really explored, but am becoming more interested in, are distressed properties. My question, is it a good idea to to buy a distressed property as my first investment? Given the current rate environment, and hot Charlotte market, I'm trying to think outside of the box. Thanks for any suggestions.

Taylor

Amy Shutes · Answer

Hi Taylor,

I'm an investor myself as well as investor friendly realtor.  I'd love to share any ideas with you that might be helpful.  I've helped newbies in the past and I was once one myself.  I understand the challenges and would be happy to help.  If you would like to chat please reach out and I will assist.

John Swann · Answer

@Taylor Williams being picky with your first property isn't necessarily a bad thing.

There are deals available at any time in a market cycle, you just need to know where to look. Someone above mentioned that just about every property an investor targets has a "distress".

I like to think of it as personal distress (divorce, inherited properties, etc.), financial distress (tax delinquent, foreclosure, etc.), and market distress (recession fears, house on market a long time, etc.).

If you're looking for deals on the MLS in the Charlotte area, they are there, but they go quick for those who know (or think they know) what they're looking for. If you're looking off-market, make sure the properties you are targeting have some type of owner distress as mentioned above (personal / financial).

Kai Kopsch · Answer

I talk a lot to first-time home investors here in CLT; less than 4% of all BP members who contacted me in the past years pulled the tricker—analysis paralysis and compared their deals to once-in-a-lifetime cash-flowing examples posted here in the forums. I hope more first-time investors see their first few deals more as a learning curve than a home run. Sure distressed properties are cheaper, but they come with risks and problems you don't want to have as a new investor. The most important is to do a deal don't lose money; take your experience and the team you build in the first deal and do the second, and so on. In Germany we have a saying : Lehrjahre sind keine Herrenjahre	We've all got to start small

Matthew Kwan · Answer

It depends on how much will you be spending on your rehab. Also, what would be your anticipated rents after the rehab? However, buying a distress property and managing your rehab, it will definitely speed up your learning process.

@Albert Bui @Carlos Valencia

Eliott Elias · Answer

The reason investors buy distressed property is because there is a higher likelihood of buying at a discount. No matter where you are sourcing your deals, you need to stick to your formula.

Mohammed Rahman · Answer

Hey @Taylor Williams - what have you already tried to do in order to source properties and how is that going to change when targeting distressed properties?

If you're planning on going after distressed properties, know that there's 1000 versions of you all going after the same property too trying to get the owner to sell. The more distressed, the more competition and crowded the space of buyers.

FYI, buying a distressed property as your first investment can either be a good or bad deal. Depends on what your goals are. Typically though, as a first time investor, I recommend getting something more along the lines of slightly turnkey. Maybe something you can put a little work into to get your feet wet before going fully after distressed properties.

Yes it'll be less cashflow, but this way you avoid the overload of headaches from buying a run-down distressed property.

Taylor Williams · Answer

Hey Chris - I actually bought my primary in August 22' after moving from Chicago. Part of me wishes I did things differently, but here I am. Renting out a room is probably out of the question, but, I'm currently looking into adding a second story to my garage/carport to hopefully rent out.

Jaron Walling · Answer

@Taylor Williams If you're doing market research, understand the numbers, and actively looking for opportunities eventually something will stick. It took me 6 months and numerous walk throughs to buy my first property (live-in flip). The listing history, pictures (lack there of), and description was full of clues for a distressed deal. After walking the property I made an offer the same day. Property was pending, relisted, and sitting for 25 DOM so I offered $25k below ask. Sellers came down $23K! The rest is history.

Listen to your gut instincts, look for problems (value add), and start making offers. REI is not rocket science. It's just numbers and solving problems.

Cody Kennon · Answer

I’m in the same boat. Trying to find something in the $100k range that will cash flow and doesn’t require much repairs. Expectations might be too high…

Distressed property for my first investment?

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