Distressed Property

Last night I attended a seminar by Dominique Grubisas on how to find and buy distressed properties. I thought it was interesting and helpful for investors to buy distressed properties, because that offered better possibilities to investors and the homeowner instead of a bank repo. Interested to hear your thoughts on this investment strategy?

Has anyone bought and sold distressed properties before? If so, what has been your experience?

Has anyone used the SMH distressed property report? Is that useful and value for the buck?

 

Yes, has been the main part of my strategy on my last couple of personal purchases.

Certain parts of Adelaide are in real trouble (I suspect there's similar parts in other cities too, though might be the wrong end of the cycle in those), and so buying the really run down stuff that the vendor is trying to escape from can be easy to negotiate on. Generally the owner occupiers avoid this stuff as they are barely scraping together a deposit, let alone renovation costs needed.

I know DaveM in his buyers agents capacity has bought a couple like this for interstaters, organised the renovations to get them up to speed then because of those renovations I've been able to lease them out fairly quickly and easily. Since they have a low buy in, the effective yield has been good, the equity pull has happened 6 months later and can be good "set and forget" type investment thereafter.

 

If someone is willing to sell their property well below its value, I can't see why you wouldn't buy it. However if people make reasonable decisions, they generally don't sell property well below its value.

 

Thanks DT. Rather than run down am looking for distressed, as in where mortgage isnt paid, divorce, deceased etc. Do you know how I can search and access for these? How do you find properties in distress in Adelaide? (PS: Am in Vic so no competition here : ) )

@Peter_Tersteeg I am not looking for someone to sell me under market value but someone who needs some financial rescue before banks and sheriffs come knocking.

@DaveM Interested to hear your thoughts on how you identify and buy these properties?

 

Yes, that's exactly what i meant as well. Except when that happens, obviously they're not in a position (either financially or emotionally) to upkeep the property properly and it gets run down, in turn scaring off other buyers.

 

Many of my purchases have been from motivated sellers. As long as the price is right then its a deal.

 

Then what's in it for you?

 

With the distressed sellers strategy by Dominique it usually recommends searching Court records showing where banks/creditors are taking owners to court.

Would you be doing to whole POA over mortgage type deal so you can flip it without stamp duty or just seeking to fully buy from someone who wants to get out?

 

If you regulatory buy/sell/source real estate for yourself, or others in a buyers agent capacity, the agents/companies get to know who you are, and at times bring distressed deals to you.as a silent listing.

 

Trawl the local primary schools for the yummy mummies who are freshly off the leash. Schoolyard gossip is a great source of info.

 

I have bought a distressed property. The seller was very relived to sell the property on their terms rather than having the bank seize the property and sell it on their terms. That said, the buyer was a little disappointed that the final sale price was slightly less than they needed to pay out all of their existing debts. Still, they got a better deal than a bank sale and seizure.

The property took longer to settle than usual. There were 3 caveats on the title and the property was also a guarantee for a commercial lease. The guarantee had to be discharged and the caveats lifted before settlement. This took time and the seller's bank didn't want to play ball. Essentially the bank went to war with itself, with the legal department (who wanted to seize the property) duking it out with the loans department (who wanted the property to settle).

There was a court granted sale or seizure order over the property which expired before settlement, so the sellers agent had to go to court to have that extended, which didn't happen until the day before settlement.

This was all Western Australia, so may not translate to other states.

To be honest I didn't find it particularly stressful. It's a property transaction and it's a step by step process. I knew it would happen it was just a matter of working through the issues. I didn't have to do much and my settlement agent didn't have to do much. It was the sellers agent and sellers settlement agent who had to do all the work.

I would do it again.

 

I have bought a distressed property. The seller was very relieved to sell the property on their terms rather than having the bank seize the property and sell it on their terms. That said, the buyer was a little disappointed that the final sale price was slightly less than they needed to pay out all of their existing debts. Still, they got a better deal than a bank sale and seizure.

The property took longer to settle than usual. There were 3 caveats on the title and the property was also a guarantee for a commercial lease. The guarantee had to be discharged and the caveats lifted before settlement. This took time and the seller's bank didn't want to play ball. Essentially the bank went to war with itself, with the legal department (who wanted to seize the property) duking it out with the loans department (who wanted the property to settle).

There was a court granted sale or seizure order over the property which expired before settlement, so the sellers agent had to go to court to have that extended, which didn't happen until the day before settlement.

This was all Western Australia, so may not translate to other states.

To be honest I didn't find it particularly stressful. It's a property transaction and it's a step by step process. I knew it would happen it was just a matter of working through the issues. I didn't have to do much and my settlement agent didn't have to do much. It was the sellers agent and sellers settlement agent who had to do all the work.

I would do it again.

 

That's not how it works. If you are going to buy a place for market value then buy any house. If the seller is going to sell for market value, they can sell to anyone on the open market. The point of a distressed sale is that you get a good deal by buying below market value and the seller gets a better deal than if the bank seized their property and sold it. How much profit you want to make is up to you and the seller to negotiate.

You need to understand the legal process.

The process involved in recouping funds through a Warrant of Seizure and Sale can also be quite time consuming. It can take many weeks, or months for the process to be completed. If the house fails to sell, or if the original judgment was awarded in the Magistrate's Court (in Victoria, as referred to below), the time taken to pursue the debt can be quite lengthy.

If a judgment debt in Victoria is obtained in the Magistrates Court, a judgment creditor must first seek to recover personal property of the debtor. It is only if the Sheriff fails to recover adequate personal property that an application can be made to the Supreme Court to seize the judgment debtor's real estate. This leads to significant expenses for the judgment creditor and adds additional time to the process.

If the real estate fails to sell for the reserve price, the judgment creditor may obtain an Order from the Supreme Court to sell the property without a reserve price, i.e. for any price obtainable. However, a judgment creditor must be aware that a warrant is only valid for three months. If the property fails to sell within that period, the judgment creditor must re-register the warrant with the Titles Office.
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Enforcing Warrants of Seizure and Sale – Hurdles and Pitfalls - Real Estate and Construction - Australia

If you learn the process then there may be points where you can step in to make an offer if you can identify the relevant properties.

 

Dominique grubisa . Real este rescue

 

@Perthguy Thanks much for sharing your experience. Loved the fact that you didn't feel stressed and found it worthy enough to go for another one. Just curious to know how you came across these distressed properties? I tried the Vic courts website for daily hearing, but found it filled with all kinda cases with no way to filter.

Did you use SMH distressed property?

 

@Westminster Thanks for your response!
I would like to buy from someone who wants to get out. How can I access the court records in Vic to get to these properties?

 

Mine was from watching the market. I have a short list of properties that I regularly monitor. The one I am referring to listed:

October 2015 $580,000 From
December 2015 $525,000 - $535,000
May 2016 $489,000 Offers

After a property has dropped almost $100k, you know there is something going on.

Another in the area went like this:
2010 $549,000 From
January 2011 $495,000 From
October 2011 $469,000 - $499,000

I picked that one up too but it wasn't a distressed sale as such. I didn't know at the time that 2 siblings inherited it and were bickering over what to do with the property so the brother undersold it as revenge on his sister.

 

Daughter bought a house from a couple involved in an acrimonious divorce. Two vendor legals to deal with, court orders even stipulated in which order documents were forwarded to each of the vendors. Legals were a hassle but sale went through.

Son's in laws got a great deal from a couple in financial trouble. Bought for less than outstanding mortgage. Lengthy delays while negotiations went on for bank to release the title. Sale eventually went through.

Both deals involved extra hassles, but price made it worthwhile.
Marg

 

Now wtih the RE apps you get alerts with changes to "favourite" properties which makes it easier. I have been loosly watching one property, and now has dropped enough to be interested in and then offer below asking range

 

Thanks @Marg Do you know how they located these properties?