Purchasing a foreclosure or distressed property at a low cost might seem like a no-brainer.

More and more people are choosing to make real estate investments. Some choose commercial, some choose multi-family and some choose to buy and sell distressed homes. This can mean pre-foreclosures, bank owned properties or short sales. There is definitely value to be found here, however, the process isn’t for everyone.

We will break down the good, the bad and the ugly so you can determine if this course of investment is right for you!

What is a Foreclosure Property?

A foreclosure property is one that has been repossessed by a lender after the borrower defaulted on their mortgage payments. Foreclosure is the legal process through which the lender seeks to recover the remaining loan balance by reclaiming and selling the property that was used as collateral for the loan.

In Wilmington, NC, if a borrower fails to keep up with mortgage payments, the lender can initiate foreclosure proceedings, which may involve sending notices, filing legal action, and ultimately selling the home at auction if the debt remains unpaid.

The goal of foreclosure is to allow the lender to recoup their financial losses. Each state has different laws and timelines, with some offering borrowers more protections and options. Homeowners facing foreclosure should be aware of potential alternatives, such as loan modification, refinancing, or even arranging a short sale, which can sometimes prevent the loss of the property.

Although foreclosure is a challenging experience, it doesn’t necessarily mean the end of a homeowner’s financial stability. Understanding how the process works in North Carolina empowers individuals to navigate the process more effectively, potentially finding options to mitigate the impact and move forward.

What is a Distressed Property?

A distressed property refers to a home that is either nearing foreclosure, already owned by a bank, or has been repossessed by the mortgage lender. Real estate investors are often drawn to distressed properties due to the opportunity to purchase them at a lower price than typical market value.

Investors might buy these homes to either renovate and sell them at a higher price or to convert them into rental properties that can generate steady income.

However, distressed properties often require extensive repairs or renovations, making them “fixer-uppers.” Homebuyers should carefully evaluate the total costs and potential risks of buying a distressed property, ensuring they understand the scope of work and investment needed before committing to the purchase.

The Good in Distressed Property

You will get a great price. This is the obvious reason why people buy foreclosures. You can find properties at a fraction of the retail price. If the property is bank owned, they will want to get rid of the property as quickly as possible. The longer they own it, the more it costs them.
If you find a home in “pre-foreclosure” you can make a cash offer to the owner. By making a direct offer, you are saving them time and the costs of commission and listing. As such, you will be able to offer less than retail. This will stop the banks from seizing their home and help to save their credit. Everyone wins.
They come in all shapes and sizes. Not just run-down, or small properties. You can find luxury homes too.
With a little elbow grease, you can turn a foreclosed property into a higher valued home. Flip it quickly, and see amazing profits on the resale.

The Bad in Distressed Property

There is considerable competition. You don’t just decide one day to invest in foreclosures and “BAM!” You have to put in the work. If it was easy, everyone would do it, right?
If you are buying at an auction, you might have to pay in cash on the spot.
Financing can be difficult. Most banks aren’t as eager to lend for investment purposes. A traditional mortgage will usually only be available when you are buying a home you plan on living in yourself.
Many foreclosures are purchased “as-is.” This means there is no time for an inspection, what you see is what you get. It’s a risk many are ok with taking. It pays to be knowledgeable in construction.
If you are buying directly from the bank, they will not be able to provide you much history on the house. You will not be able to have much information about the house disclosed.

The Ugly in Distressed Property

Logic might tell you, that if the previous owners weren’t able to pay their mortgage, they were likely not able to sink any money into the house. Enviably, things will need to be repaired. If money is a concern, basic home repairs can go by the wayside. Often being help together with band-aids until something eventually goes really wrong. Many are run-down and not well taken care of.
Once a bank takes over a property, it can end up sitting vacant. Unfortunately, people will take advantage of the empty property. Often times causing damage and looting of major appliances. Vandalism is very common when it comes to foreclosure properties.
There have been cases where a foreclosure has been purchased, however, the tenants simply refuse to leave. It is rare, but you might have to go through the eviction process to get them to go!

With all its headaches, purchasing a foreclosure isn’t right for everyone. You should be prepared to do a good amount of work to bring the property up to acceptable standards. Before you jump in, make sure you know what you are getting into! There are amazing deals to be found!

Are you looking to purchase a foreclosed or distressed property in Wilmington?

Are you interested in purchasing a foreclosed or distressed property in Wilmington? Whether you’re a seasoned investor or a first-time homebuyer, these types of properties can offer great potential—but they also come with unique challenges.

We’re here to guide you through the process and help you find the best house deals in the area. Our team is ready to provide expert advice, answer any housing questions you may have, and assist you in making a well-informed purchase.

Feel free to send us a message or give our office a call at (910) 538-7737 today to get started! We’re here to help you every step of the way.