Investing In Distressed Property? Keep These Factors In Mind

The sale of distressed property in India has picked up ever since banks here began auctioning them online. Recently, State Bank of India (SBI) auctioned over 300 properties online. Other banks are expected to follow suit.

Buying a distressed property might look like a luring deal as you can invest in a property at a price much lower than the market price. However, there are two kinds of distressed properties; properties that make a good deal and others that make a bad deal. It is very important to distinguish between the two when investing in a distressed property.

Here are a few criteria that differentiate a good deal from a bad deal:

Discounted price

The best trait of a distressed property is that it can be bought at a price far less than the market price. It either means that bank is in a hurry to recover its money from a bad loan or that the owner is desperate to offload it. So, when investing, ensure that the price of a distressed property is at least 30 per cent less than that of any other resale property in the same area. If the price difference is less than 30 per cent, it might be not a good deal.

Base price is not the final price

What might trump an online home buyer is the base price, but that is not the final price you will pay. There are a number of bids on the property, which might inch up the end price to that of market price. If there are plenty of willing bidders, the price might go awry, making a good deal into a bad deal. If you see that there are too many bids, withdraw from the auction.

Home improvement costs

In most cases, a distressed property is not necessarily in the best condition and may incur repair cost. Always calculate home improvement costs. This might help you differentiate a good deal from a bad one. Speak to people, who have invested in a distressed property in the past to fairly assess the cost involved .

Legal troubles

There have been cases of embittered former owners holding up the sale of distressed properties. In many such cases, the owners even sue the bank. It is important to check the right of first refusals that many residential societies hold, for the sale of a property. Not only will these issues hold up the sale procedure, but will cost you in terms of legal consultations. So, properties in the restricted residential societies are a bad deal, even if they come at a good price.

While most distressed properties are auctioned online, a number of brokers, too, hold auctions for resale of this kind. It might be easier to invest in distressed property directly from the owner, as there will be fewer complications and negotiations are easy as compared to third-party purchase from banks.