Buying distressed properties

By Victor Kumar
One of the keys to buying under market value properties is to recognise opportunities as well as the reasons why some people need to sell, which sometimes can be due to emotional upheaval.
As I outlined in the first part of this series on how to profit from under market value properties, one of the principal reasons why properties are often listed for less than true value is because the vendor needs to sell quickly.
Unfortunately, a quick sale can mean that the owner is in financial difficulty, which can be caused by a relationship breakdown.
Other reasons why a seller may want a quick sale rather than a high price is because their financial situation has changed and they can no longer afford the repayments.
I will discuss mortgagee sales in the next blog in this series, but it’s always preferable for owners to attempt to sell their home before their lender steps in and does it for them in a bid to recoup their money.
This is because, while lenders do have to try to get the best price for a property if it is a mortgagee sale, it’s unlikely that the final sale price will be as high as it could have been if the owners were able to sell it themselves.
In today’s real estate environment, many homeowners and investors are a couple of some kind, whether that be marriage, de-facto or even siblings and friends.
Property prices are higher than they were for baby boomers, but that’s also because in most households these days there are two incomes, versus one wage earner in decades gone by, which is partly why prices have increased so much since the 1980s.
What this means is that if a relationship breaks down, then the two incomes that were paying the mortgage can suddenly become one and often the numbers no longer add up.
One person is usually left in the home after a separation and can struggle to keep up with the repayments.
Also, if the property was jointly owned, then a separation or divorce may often require the property to be sold and the proceeds divided between the two parties.
If the separation is amicable, and both parties continue to pay the mortgage, then the property can usually be sold via a normal sales campaign and will likely achieve a reasonable price.
However, the emotional and financial distress experienced in a relationship breakdown, means that often the owners want to sell the property quickly with little regard to the final price.
Investors can benefit from these types of listings and can usually discover the reasons for the quick sale by asking the right questions of the selling agent.
Of course, in these types of situations, it’s important to respect the emotional turmoil that the sellers are experiencing and behave accordingly.
There are other reasons for financial and emotional distress, such as one of the property owners losing their job and not being able to keep up with the repayments.
Also, one half of the couple may become sick for a long period of time or leave work to care for an elderly parent, which can result in unexpected financial distress and an inability to meet their mortgage commitments.
All of these scenarios are not pleasant, but they can and do happen to people every single day.
Investors can make the most of these opportunities by acting as quickly as possible – making sure they still do their due diligence in the process as well.
We’re all human so it’s never enjoyable seeing anyone suffering from emotional and financial distress, but it’s important to remember that by purchasing the property you are helping to relieve the sellers of some of their stress. It also may allow them to move on physically, financially and emotionally.
In my next blog in this series, I’ll outline how to find under market value properties which are being offloaded by institutional investors such as banks, the public trustee, housing commission or liquidators.