It can be difficult to get your foot in the door when it comes to real estate investment. The upfront investment starts quite high for ready-to-rent locations, which makes this a challenging barrier for entry.
However, entrepreneur and real estate investor Timur Yusufov advises eager real estate investors to start investing in distressed properties for rehabilitation instead of going for new or renovated properties.
Why Purchase Distressed Properties
Put simply, purchasing these types- of properties is cheaper. Plus, there will be fewer people interested in the property, the sellers are not in control – you are. Timur states that this places you in a position of power if you are ready to put in the time and effort to understand what you are purchasing.
The Risks Of Investing in Distressed Properties
If you choose to go this route, there are risks involved:
- Running out of funds to renovate the property
- Underestimating the amount of work to be done
- Difficulty getting an appraisal for badly damaged properties
However, there are ways to mitigate this risk – Timur Yusufov outlines them below.
How To Safely Purchase And Rehabilitate Distressed Properties
1. Shop Around
Don’t settle on the first property you find. Shop around and compare other properties in the same area. Timur advises you to also look at real estate in pristine condition to get to know the market in your area.
You should have an idea of what a property is worth and why. Thus, if you find a distressed property with a low price – even for its state – this may indicate that something more is happening that you cannot see. Avoid these properties.
This research will also allow you to estimate the potential value of a distressed property once it has been rehabilitated so you can weigh the risk and benefit of the investment.
2. Choose Reputable Inspectors
You’ll want to know exactly how much work needs to go in the rehabilitation of your distressed property before making a purchase. Otherwise, you may get some bad surprises and find out you have gotten more damage than what you originally bargained for.
When choosing an inspector, do your research and ensure you are getting the best possible inspector for the job. Make sure they cover all possible types of inspections for the type of property you are considering.
3. Plan A Generous Margin In Your Rehabilitation Budget
Despite doing your research and getting all the proper inspections, sometimes issues will come up with a property that you didn’t plan for.
Timur urges you to plan for surprises when setting your budget for a property. This is the only way you’ll truly be able to see if the property is a safe investment. If you only have a budget large enough to purchase the property and rehabilitate it, but cannot plan a generous margin, go for a property that will cost less (both in the initial purchase and in renovation costs).
Timur Yusufov states that purchasing distressed real estate for rehabilitation can provide a stellar return on investment – all you need is careful research and planning to recognize a good opportunity when you see one.
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