Finding distressed properties, contacting homeowners, making offers, and closing deals is the bedrock process for building a real estate investing business.
But it all starts with the distressed property.
How do you find distressed properties? What are they? What are the signs a property is distressed?
That’s what we’re talking about here.
Before we get into it, though, enter your email below to get our tested-and-proven real estate script — this is the exact script our reps use here at Call Porter when answering the phone for hundreds of investors around the nation. After all… if you’re going to find distressed properties, then you need to know how to talk to motivated sellers!
What is a distressed property?
A distressed property is a property that is in poor condition, behind on payments, or otherwise in a situation where the owner may be motivated to sell quickly.
There are many reasons why an owner might be motivated to sell quickly. They may be facing foreclosure, going through a divorce, relocating for work, or any number of other personal circumstances.
Here are some other reasons that a property could be in “distress”:
- It’s in need of significant repairs or renovations
- It’s been vacant for an extended period of time
- The owner is behind on property taxes
- The owner has multiple properties and can’t afford to keep them all up
- The property is in an area with a high crime rate
These are just a few examples — there are many other reasons why a property might be considered distressed.
The Benefits of Buying Distressed Real Estate
It’d be fair to ask, “But why do real estate investors look for distressed properties?”
The reason is actually pretty simple.
Investors are looking for properties that they can buy at a discount — because if they can buy them at a discount, then they can make a profit on them.
If an owner is motivated to sell quickly (because the property is “distressed”), they may be more willing to accept an offer that is below market value. This allows the investor to purchase the property, make any necessary repairs or renovations, and then sell it (or rent it out) for a profit.
Of course, not every distressed property will be a bargain — but if you know how to find them and how to negotiate with the owner, you stand a good chance of finding some great deals.
Let’s walk through an example.
Imagine that you find a distressed property that needs some work. You make an offer to the owner and they accept.
You purchase the property for $100,000 and put $20,000 into repairs and renovations. After repairs, the property is worth $150,000.
You sell the property or rent it out and make a $30,000 profit.
Not bad, right?
That’s how investors profit off of distressed properties: by offering a fast, cash-only process to motivated sellers in return for a discounted price.
5 Signs a Property is Distressed
While every situation is different, there are some common signs that a property might be distressed.
Some of these, you’ll only be able to tell by looking at public data and pulling records from places like Propstream. Others you can only tell by driving around your city and looking at properties with your own two eyes.
It’s in poor condition: This one is pretty self-explanatory. If the property is in disrepair, it’s likely because the owner can’t (or doesn’t want to) spend the money to fix it up.
It’s been vacant for an extended period of time: A vacant property is a red flag for investors. It could mean that the owner can’t sell it or rent it out, which means they may be more willing to take a lower offer.
The owner is behind on property taxes: If a property owner is behind on their taxes, it’s a sign that they may be struggling financially. This could make them more willing to accept a lower offer.
The property was just inherited: If a property was just inherited, the new owner may not have the money to fix it up or may not live in the area. This could make them more willing to sell at a discount.
There are code violations: Code violations are a surefire sign that a property is in distress. These can range from things like having too many occupants to more serious offenses like not having up-to-date fire safety equipment.
How to Find Distressed Properties Online & Offline
Now let’s talk about how to find distressed properties, both online and offline.
These tactics aren’t theoretical.
They are working right now for tens of thousands of real estate investors around the nation.
Use them… and they’ll work for you, too.
Zillow is one of the most popular real estate listings websites out there — and for good reason.
Not only does it have a ton of listings, but it’s also easy to use and you can filter properties by things like price, location, and type.
To find distressed properties on Zillow, we’re going to use its slightly hidden keyword search feature. Enter your market and click on “More”. Then scroll all the way down to find the “Keywords” slot.
This feature will show you listings that include the keyword you entered anywhere in their description.
Here are some keywords you can use to find distressed properties…
- “for sale by owner”
- “must sell”
- “as is”
- “cash only”
- “proof of funds”
And what you’ll get when you type in one of those keywords is a list of all the current property listings that include that term somewhere in their description.
Obviously, going through all of these keywords can be a little tedious.
So we recommend setting up saved searches for each keyword so that you’ll get notified via email whenever a new property is posted that includes one of your target keywords.
Just click on “Save Search” after typing in each keyword and give it a relevant name — make sure to select instant notifications.
If this process seems too tedious, hire a virtual assistant to do it for you — here’s a list of the best virtual assistant companies for real estate investors.
You can create the exact same type of keyword alerts on Craigslist that we just did on Zillow (we recommend creating a new email account for all of these notifications… you’re going to get a lot).
Go to Craigslist and create a free account.
Then go to the “real estate for sale” category.
Now, remember that list of keywords we gave you for searching for distressed properties in Zillow? Take the same list — starting from the top — and type each keyword into Craigslist one at a time.
Then, for each keyword search, click the “save search” button to the right of the search bar. Your alerts, by default, will be toggled off. So make sure you toggle each search to “On”.
Just go through the entire list and your email inbox will start getting flooded with new potential opportunities and real estate investments.
Propstream is a paid subscription service that gives you access to a ton of public records — and it’s an essential tool for finding distressed properties.
Some of the records you’ll be able to access with Propstream include…
- Property data
- Owner information
- Mortgage information
- Foreclosure filings
- Eviction filings
- Tax liens
So you can see how this data is jam-packed with valuable information when you’re looking for distressed properties.
Start by creating a Propstream account (they have a 7-day free trial).
Once you’re in, the first thing you want to do is enter in the primary zip codes where you want to find distressed properties as well as any other property criteria (single family, 3+ bedrooms, so on and so forth).
Then add an equity filter to only pull owners with 35% to 100% equity — this will ensure that you’re only seeing properties where the owners have a good bit of equity (and are therefore more interested in cash offers).
All of the following niche lists you’re going to pull will keep that equity filter on.
You’re going to save these lists (just click “Save Search” in the upper right), combine them, clean them, and then send mailers (using Ballpoint Marketing) to all of those owners.
This is one of the best ways to find distressed properties in any market.
Note: Expect to spend at least $3,000 on your first batch of mailers. Your chances of getting a deal out of your efforts are much higher that way. After all, would you rather spend $1,000 and get no deals? Or spend $3,000 to get the proof of concept you need to be successful in this business?
To stick to a budget of $3,000, you should aim to send 2,000 to 3,000 mailers (meaning that should be the size of the total list you pull from Propstream).
If you’re more a watcher than a reader, check out the video below…
Under “MLS Status”, select “Failed.” This will filter expired listings. These properties were listed on the MLS but they failed to sell. That’s a good sign that the property is distressed.
Under “Lien/Bankruptcy/Divorce Status”, enter $1,000 in the minimum “Lien Amount” field. This will filter property owners who have some sort of lien against them valued at $1,000 or more. If this makes your list too big, increase the minimum amount until it’s a more manageable volume.
Under “Lien/Bankruptcy/Divorce Status”, go to “Quick Target Status” and select both “Has Active Bankruptcy” and “Bankruptcy dismissed.” People going through bankruptcy (and people who just went through bankruptcy) are in a difficult spot and might be motivated to sell their home.
Under “Pre-Foreclosure & Bank Owned”, go to “Status” and check the box that says “Notice of Default / Lis Pendens” — these properties are going through the pre-foreclosure process and the homeowners might be motivated to sell.
Under “Ownership Info”, go to “Intra-Family Transfer” and select “Include”. This will show properties that were passed (or inherited) from one family member to another. People who inherited a property are often interested in a fast cash sale.
Sending The Mail!
Now it’s time to combine all of those lists into a single data document. And make sure to scrub by removing duplicate homeowners and getting rid of properties that recently sold.
Then go to Ballpoint Marketing and get some mailers.
You can either opt for hand-written mailers or postcards — the price you see includes postage. Just place your order and here’s what the process will look like for each…
Letters — Ballpoint Marketing puts postage on all of the letters you order and ships them right to your door. That way, you can put them in the mail yourself (using the list of addresses you pulled) and get the local postmark. Most homeowners aren’t interested in receiving mail from a different state…
Postcards — These will be printed with postage and delivered (drop-shipped) straight to your uploaded list.
Then wait for the phone to start ringing in a couple of weeks.
Use our script you’ll find at the top and bottom of this article so you know what to say when those motivated sellers are blowing up your phone.
4. Investor-Friendly Agents
Real estate agents probably aren’t the first people you’d think to ask for help when looking for distressed properties to buy at below-market discounts.
But, in fact, investor-friendly agents provide a gold mine of opportunity.
Beyond just networking with local agents (which we do recommend), check out the video below to learn how to find these awesome agents inside Propstream.
5. Driving For Dollars & Door Hangers
Driving for dollars is a process where you literally drive around looking for vacant, neglected, or run-down properties.
This is a great way to find off-market properties.
Aim to find at least 100 new properties every week. When you find one that looks distressed, put a door hanger on it. We recommend these hand-written door hangers from Ballpoint Marketing.
You can also add these people to your mailing list as we described in the “Propstream” section of this article. But in most cases, those door hangers will get the phone ringing plenty.
Speaking of which, if you want someone to answer the phone for you so you only spend time talking to the most motivated sellers, check us out at Call Porter!
Final Thoughts on Finding Distressed Properties
Now you have the best strategies know to real estate investors for finding distressed properties in your market.
But just because you know how to find these deals, doesn’t mean you actually will.
The biggest barrier between you and success in this business is taking action.
Yes, it’s easier said than done… but it can be done.
Start by implementing one of the above strategies and then work your way up to using all of them.
The more distressed properties you find, the more deals you’ll be able to do every month.
As far as talking to those motivated sellers who will be calling you on the phone, click below to get the real-world lead-intake script that we use here at Call Porter.