Distressed properties: How does it happen?

There is typically a story behind every property you can buy for under market value, and in this blog, we will offer some insight into this feature of the property market.

One question to ask when looking at undervalued properties is: why does the vendor need to sell quickly? Is it due to a sudden change in circumstances, a family dispute, or something else? The one thing which under market value properties often have in common is that they are being priced for a quick sale due to the owner coming into financial trouble.

Time is of the essence

If an owner is struggling to make their mortgage repayments, the fact is that it can be better for them to sell before their lender has to step in and put the property on the market themselves in order to get their money back. That’s because in general, the price that the owner is able to sell a property for will be higher than the final sale price that a lender can achieve.

1 + 0 = ?

In today’s property market, prices are driven in part by the presence of two earners within a household. Whereas generations gone by, there would typically have been one main earner who was paying off a mortgage. When mortgage repayments rely on two salaries, the end of a relationship can mean that it is no longer feasible to keep up repayments, as two sources of income turn into one.

Divided by a divorce

When it comes to divorces, the marriage isn’t the only thing that is divided. It is often a requirement of the divorce that a property is sold, with the two parties splitting the proceeds. Quite often, there will be no major rush to sell the property following a divorce – if both parties are still communicating well, the property can be priced normally through standard sales methods. The problem comes when issues from the separation – be they financial or emotional – can mean the property needs to be sold as quickly as possible, with the price becoming almost secondary in importance.

A victim of the job market?

Career instability is also a factor that can influence property prices. If one of the property owners has been made redundant, this could have caused them to falter with their mortgage repayments. Ill health is one reason why an owner’s job may have been affected, leaving them in a precarious financial situation.

Getting to the bottom of it

If you are wondering why a particular property is on the market at a particular price, you can always ask. If you do quiz the property agent on the story behind the price, remember to do it subtly, and with respect – these kind of situations are usually not easy for the seller.

Take the opportunity

The truth is that the kind of scenarios which are uncomfortable for sellers can represent investment opportunities for buyers. Sealing a deal can also help sellers move on with their lives by speeding up what can be a painful process.

So how to go about taking these chances to snap up a distressed property at a bargain price? Speed is certainly one element you shouldn’t ignore. If a property has been significantly undervalued, it seems that it won’t be on the market for long. Should a property be ticking a few of your boxes in terms of size, location and local amenities, you might be well advised to act sooner, rather than later.

If you are investing in property development, you need a complete management solution in place. Call Costas today on 03 9887 8244 to learn how our personalised service can maximise the return on your investment.