Making Money Through Distressed Properties

If you are a beginner when it comes to real estate investment or are a seasoned professional looking to expand your portfolio, at some point you may have thought of buying distressed property. Whether it is land, houses or commercial space: there are certain things you have to consider.

Given the burgeoning real estate industry in Nigeria there are plenty of deals to be had: especially in Abuja and Lagos. However, these deals are not just limited to Nigeria, but can be found throughout Africa.

Distressed real estate is particularly attractive to investors due to the fact that the properties on offer, are often highly undervalued or discounted. This gives investors increased profit margins when they sell. It is for this reason that when it comes to flipping land, distressed properties are highly sought after.

Ultimately the best way to find distressed properties is to look for sellers that are “motivated to sell”. These sellers usually have properties that they are unable to maintain or no longer want.

In this article we will cover ways you can find these motivated sellers and eventually buy from them.

Villa Afrika are Abuja estate agents. If you are looking for a house, flat, land or commercial property, to buy or rent — visit our property or land listings. You can also send a property request.

What is a distressed property?

Distressed properties are houses, land or commercial spaces that can no longer be maintained by their current owners. Often these properties suffer from long term neglect and are consequently in a poor state.

The inability to maintain a property may stem from an owners current financial situation: they may have debts they need to pay off. Properties under foreclosure, due to an owner being delinquent, can also be considered distressed.

In essence, a distressed property is any property where the seller is really motivated to sell and more often than not, as soon as possible.

Finding distressed properties = finding undervalued real estate

If you want to find distressed properties, you must realize that nobody calls their own home “a distressed house”: unless of course they need to sell really urgently. You also need to know that fundamentally, a distressed property is one which is “undervalued” precisely because the owner needs to sell quickly.

What this means for you, is that there are certain properties that have all the characteristics of a “distressed property” but won’t be called or listed as such. So if you were to simply search online for “distressed properties” you will be missing out on a large percentage of homes that are “undervalued”.

What makes a property undervalued?

For you to understand what makes a property undervalued, you need to understand what makes it valuable in the first place.

The market value of a property is dependent on a number of factors including:

  • Inflation rates
  • Population growth
  • Infrastructure
  • Demand and supply
  • Changes in nearby real estate
  • Future government plans

In the case of a distressed property, an owner is willing to forgo (discount) some of the value his/her property has in order to sell quickly. Hence we have an undervalued property.

If you have a good understanding of factors that make a property valuable and how they relate to the real estate market in your target city, finding distressed properties and eventually doing lucrative deals is a given.

How to find distressed property

Investors need to focus on real estate markets that show a strong demand for property. The stronger the demands the easier it will be to both buy a distressed property and eventually sell it.

Since Abuja and Lagos are Nigeria’s two biggest real estate markets, it is wise for investors to focus on these two cities: particularly beginners.

Further, in order to make you search easier you need to focus on a particular property type: are you seeking commercial properties: hotels, bars, or clubs? Or are you focused on land or residential buildings?

Below are five of the best ways to find distressed properties:

Go out looking: drive around a targeted neighborhood

A more hands on way of finding distressed houses, is to hop in a car and go driving around a targeted neighborhood. For this method to be effective, it is important that you target specific neighborhoods in Abuja or Lagos (or anywhere else you are looking). Thus you need to have done some prior research.

When you do go out, what you want to be looking for are specific signs that a property may be distressed, so things like:

  • Properties that are in an obvious state of neglect
  • Houses where the lights are not turned on at night
  • Properties that look unkempt: overgrown grass, broken windows and peeling/faded paintwork etc.
  • Uncompleted buildings
  • Undeveloped land in relatively built up neighborhoods

Once you spot a few potential properties, jot down a few details and be sure to make a note of the address for reference later.

Generally, real estate in a state of neglect shows that an owner has given up on maintaining the property in question. The reason for this, more often than not, is the owner simply can’t afford to maintain it. Accordingly, you may have found yourself a motivated seller willing to part with his property at a discounted rate.

Due to the construction boom in Abuja and the recent down turn in the economy, Abuja is the perfect place to hunt for such properties: here you will find a number of uncompleted buildings scattered across the city.

This is an obviously more “involved” process than simply searching online. If you don’t want to do the legwork, it would be wise to employ the services of a reputable estate agent.

Bank owned properties

Bank owned homes are distressed properties that have already been repossessed: under foreclosure. Banks repossess homes for a number of reasons, including where people cant keep up with their mortgage payments or some other form of loan for which a property was used as collateral.

Often these bank owned properties sit there for long periods of time incurring maintenance costs. These properties are considered “cheap real estate” as rather than incur these costs, banks would prefer to get rid of these properties quickly and often at a discount. The quicker a bank sells the quicker they can recover the balance owed to them.

Banks often list these properties on their own websites. You can also always make a direct inquiry over the phone.

Government owned properties

In Nigeria we have the Asset Management Corporation of Nigeria (AMCON). AMCON is an agency of the federal government saddled with the responsibility of stabilizing the financial system by buying up non-performing loans from banks and related financial institutions.

These non-performing loans are often collateralized with property, which AMCON takes possession of and proceeds to sell to try and recover debts owed. AMCON has a range of different properties for sale from across the country: including Abuja and Lagos. You can find a list of available AMCON properties on their website.

Search real estate listings online (and offline)

You can find distressed houses for sale by looking at real estate listings. Pay particular mind to forums, online classified sites and newspapers. Here you can find many sellers that are motivated to sell quickly.

Remember, what you are searching for is not just listings with the term “distressed property” but rather properties that are below market value. A lot of the time these undervalued properties are so, because they are actually distressed.

When looking through online listings, pay close attention to properties that have been listed for a long period of time say 3+ months. Even if these listings have become expired try and get in direct contact with the agent or owner. You can then offer them a deal and see if they accept.

Work with a real estate agent

Real estate agents are an invaluable resource when it comes to buying properties. Due to the fact that agents network with other agents they are able to source deals based on what particular types of real estate you are seeking.

Additionally many estate agents are in direct contact with banks, lenders and government agencies. Therefore they may be aware of far more distressed properties than that which you would find online. This is beneficial to a distressed property buyer as you will gain access to the best deals before it’s too late. So be sure to develop a relationship with an estate agent.

To conclude

Buying distressed real estate is seen as appealing by many investors as they potentially offer profitable real estate investment opportunities. You can buy distressed real estate for flipping or for rental yield (after renovation).

The process of finding distressed properties for sale can be difficult, but can also be much simpler, if you educate yourself on some of the best methods to use and places to look. By utilizing a mix of different strategies (highlighted above) for targeting these properties, you are sure to find a range of potentially great deals.

If you are looking for distressed properties for sale in Abuja, Villa Afrika can help. Get in touch today and we will source you a list of distressed real estate to buy: +234 708 500 8039.

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