Finding real estate to purchase in the Bronx isn’t always easy, especially if you want a good deal on an investment property. For some investors, distressed properties are an attractive option in this competitive market.
Short sales and foreclosures are two types of distressed properties that may offer lower purchase prices; however, they also carry legal and financial risks that might not be easy to see at first. These properties may need considerable repairs, have title issues or liens or be the subject of an occupancy dispute.
What’s the difference between a short sale and a foreclosure?
A short sale occurs when a property owner wants to sell the property for less than the full mortgage balance. In these cases, the lender has to approve the terms of the sale. Because of that, short sales aren’t usually quick transactions.
A foreclosure usually involves the lender taking possession of the property after taking legal action based on a borrower’s default on the mortgage terms. These sales may happen a bit faster than a short sale, but the discounts on the property may not be as high.
Due diligence is critical
Whether you’re considering a short sale or a foreclosure, due diligence is critical. Looking beyond the listing price is necessary. You should check for the presence of tax arrears, judgments, cooperative or condominium charges, liens or municipal violations. You should also conduct a title search and look for open permits on the property.
Both short sales and foreclosures are usually sold as-is. This means that you will be responsible for all repairs and code compliance starting at the closing. A basic walkthrough likely won’t reveal hidden issues, so it’s usually best to have a professional inspection done before the purchase.
There’s also a risk of other issues coming to light. In multitenant buildings, tenant status and rent registration are important factors because they can affect future use and income from the property
Distressed properties can be worthwhile investments, but only if they’re handled properly. You should critically review the potential risks to determine if the potential profit is worth taking the risk. Working with someone who can assist with the due diligence may be beneficial for investors looking into these properties.