A Simple Strategy for Uncovering Distressed Properties

It seems like only a few short months ago, real estate investor had enough inventory to last a lifetime. Foreclosed homes were available by the thousands and many sellers were motivated to enter into short sales transactions.

Because of the competition from foreclosures and other distressed homes, many traditional sellers could not move their homes because of the oversupply. Here we are, several months later and the scenario is vastly different.

With housing inventory dipping to ten-year lows, investors need to take a more aggressive approach to finding suitable candidates for their investment portfolios.

Following is a four-step approach you can take to help you shake out owners of distressed properties and potential purchase transactions.

1) Identify you target area

The first step is to stake out an area to drive and search out distressed properties in subdivisions that meet your criteria. You should already have a market market that you prefer, exit strategies for your investment, etc. Use a factor like the assessed values of homes in a particular subdivision to narrow it down.

Make a list of the subdivisions on a spreadsheet and for each categories for property address, notes (property condition) absentee owners or not and other categories you deem important, such as condition, age, number of units and more. You should also carry with you a good camera and pen.

2) Schedule Street tours

The best time to start is in on a weekday morning after traffic has rush hour subsided and most people have made it to work or school—10:00 am to early afternoon. You need to look for overgrown yards, newspapers in the driveway, boarded- up windows code violations, stuffed mailboxes and debris.

If you perform your drive-through during a holiday like Halloween or Christmas or on a trash-pick-up day, be watchful for homes absent decorations or trash cans on the curb.

3) Record information and research

Record addresses, make notes and take a couple of pictures for properties you want to investigate further. Take photos of the worse aspect of the homes. Once you complete your drive to locate distressed properties complete the research on the properties of interest.

Filter out bank owned homes. Now you can get rid of other homes that do not meet your investment standards or aim for this project. For example, if one of you criterion requires homes with high equity, you may want to pursue only the homes where deeds were recorded a minimum of ten years. Once you complete your research, filter down to your final list.

4) Marketing strategy

You don’t need an elaborate marketing campaign. A post card or yellow letter will suffice. One investor recommends mailing a customized invitation style envelop and letterhead that reads something like this:
“I drove by the property at 123 South Street and noticed that it appears vacant…”

The envelope and letter has a camera shot of the actual home, which greatly improves the odds of the owner opening the letter. Another version of this strategy, but a lot less effective, leaves a door hanger with the same message.

Conclusion

This marketing approach requires patience and persistence. Scheduling regular drives and following through with contacting the owners can produce a steady stream of potential transaction.

This strategy separates you from the other investors who stick with traditional strategies of purchasing foreclosed homes or other distressed house in lock-step fighting for the same properties with their competitors.

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