What is a Distressed Property?

In the world of real estate investing, distressed properties often come up as a topic of interest. But what are distressed properties?

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By: Joe Stephenson


  1. What is a Distressed Property
  2. Common Signs
  3. Examples
  4. Pros and Cons of Buying
  5. Tips
  6. How to Find a Distressed Property
  7. FAQs
  8. Real Estate Investors
  9. Contact


Distressed properties are homes or buildings that are in poor condition or whose owners cannot keep up with their mortgage payments.

They can be a goldmine for real estate investors looking for properties below market value.

a distressed home in a town

Common Signs of Distressed Properties

How can you identify a distressed property? Here are some tell-tale signs.

  • Neglected Maintenance - Look for broken windows, peeling exterior paint, or a neglected yard.
  • Multiple Notices - Often, the current owner may receive multiple notices from the bank due to delinquent mortgage payments.
  • Legal Notices - In some cases, you might see legal notices posted on the door or windows.
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Distressed properties come in various forms.

  • Foreclosed Homes - These are properties where the homeowner couldn't make their monthly mortgage payments.
  • Short Sales - Here, the homeowner owes more on their mortgage than the home's current market value.
  • REO Properties - Real Estate Owned (REO) properties are bank owned properties that didn't sell at a foreclosure auction.
a house with a note in the window

Pros and Cons of Buying a Distressed Property

Buying distressed properties isn't for everyone. Here are some pros and cons to consider.


  • Lower Price - Distressed properties often sell for less than their market value, increasing potential profit margins.
  • Less Competition - There may be fewer buyers in the market for distressed homes.
  • Potential for High Returns - With necessary repairs and upgrades, these homes can be resold at a higher price.


  • Need for Repairs - Most distressed properties require serious repairs.
  • Purchasing Delays - The foreclosure process or short sale negotiations can take longer than a regular home sale.
  • As-Is Sale - Most distressed properties are sold "as is," meaning the buyer purchases the property in its current condition.
a dollar bill with some coins

Tips For Buying Distressed Real Estate

If you're considering buying a distressed property, keep these tips in mind.

  • Get an Inspection - Always have a home inspection before buying to identify any potential issues.
  • Work with a Real Estate Agent - A real estate agent experienced in distressed property sales can guide you through the process.
  • Be Patient - The process of buying distressed properties can take longer than other real estate transactions.

How to Find Distressed Properties

Finding distressed properties requires a bit more legwork. Here are some methods:

  • Foreclosure Auctions - Attend local foreclosure auctions.
  • Short Sales - Contact real estate agents who specialize in short sales.
  • Online Searches - Search online for bank-owned REOs or properties with delinquent mortgage payments.
  • MLS Listings - Check the Multiple Listing Service (MLS) for distressed properties.
  • Tax Sales - Look for properties with unpaid property taxes.

Every county or city should have a resource like this on their website -

Look for these types of websites to find tax foreclosures. Contact us to learn more about how to identify these types of properties.

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What Are The Risks Of Buying Distressed Properties?

Buying distressed properties does come with risks, including unexpected repair costs, purchasing delays, and potential issues with the title.

What Does Buying A Property As-Is Mean?

Buying a property "as is" means you're purchasing the property in its current condition, without any guarantees from the seller about its condition or functionality.

If It's So Risky, Why Do People Buy Distressed Properties?

Despite the risks, many investors buy distressed properties because they offer the potential for high returns. They are often sold below their market value, providing an opportunity to renovate and resell them at a profit.

While buying distressed properties can be risky, it can also be a lucrative venture for savvy real estate investors.

By understanding what to look for and how to navigate the process, you can potentially find a great investment property.

two people working on paperwork

Real Estate Investors

Real estate investors often seek out distressed properties as a part of their investment strategy.

Distressed homes, including REO (Real Estate Owned) properties and those in pre-foreclosure, can offer significant benefits both for the buyer and the county.

From an investor's perspective, these properties are typically priced below market value due to the seller's motivation to avoid foreclosure, allowing the buyer to save money on the purchase.

This lower cost can make the prospect of buying, renovating, and reselling these homes - often termed "fixer-uppers" - more profitable.

For the county, selling distressed properties helps recover unpaid property taxes, reducing tax delinquencies.

Additionally, revitalizing these properties can enhance neighborhood property values and reduce blight.

If you're interested in investing in distressed properties, here are some steps to get started.

  • Public Records - Check public records for default notices and tax liens. These documents can help identify distressed properties.
  • Foreclosure Sales - Attend local foreclosure sales where many distressed properties are auctioned off.
  • Networking with Other Investors - Join real estate investing groups or forums to learn from other investors' experiences.
  • Probate Court - Properties inherited through probate court can often be purchased below market value.
  • Engage with Motivated Sellers - Homeowners looking to sell quickly to avoid foreclosure can be a good source of potential investments.
  • Big Banks - Banks often have a list of REO properties that they own due to unsuccessful foreclosure auctions

While distressed properties can provide significant opportunities for profit, the closing process can be complex and requires careful due diligence.

Ensure you understand all legal and financial implications before purchasing a foreclosed home or any property on the open market.

Contact Joe. Join Our Newsletter.

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Joe Stephenson is a dedicated real estate professional with a wealth of knowledge in dealing with various property types, including distressed homes and REO properties.

His experience spans across resale and new construction, making him a valuable resource for those navigating the complex world of real estate.

Whether you're seeking to purchase a bank-owned property, sell a distressed house, or explore pre-foreclosure options, Joe's expertise can guide you through every step of the process.

He has successfully managed many distressed sales and understands the intricacies involved in handling neglected properties.

With Joe, you can be confident that your interests as distressed owners will be well-represented.

If you're interested in exploring more about distressed properties or want to stay updated on the latest trends in the real estate market, consider joining our newsletter today.

Let Joe Stephenson help you turn a challenging real estate situation into a profitable opportunity.

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