How to Find Distressed Properties in Your Market

Looking for distressed properties in your market? 

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In this guide, you’ll learn everything you need to know about distressed properties — what they are, how to find them, and even how to buy them. 

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Let’s dive in.

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What is a Distressed Property? 

In real estate investing, a distressed property refers to a property that is in need of repair, typically due to foreclosures, bankruptcies, or abandonment. These properties are often sold at a discount, making them an attractive option for investors.

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The term generally applies to residential properties, but can also be used to describe commercial real estate assets as well. Properties can become distressed for a variety of reasons, but the most common reasons for distressed properties are... 

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Foreclosure: When a homeowner is unable to make their mortgage payments, the lender may foreclose on the property. This process can take several months, during which time the property is typically not well-maintained. 

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Bankruptcy: If a property owner declares bankruptcy, they may be required to sell the property to repay their debts. These properties are often sold at a discount as well. 

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Abandonment: Sometimes, property owners simply abandon their homes. This can happen for a variety of reasons, such as job loss, divorce, or death. Whatever the reason, these properties are often in need of significant repairs.

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Divorce:  In some cases, divorcing spouses may be required to sell the family home in order to split the assets. These properties can often be purchased at a discount as well.

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Probate: When a property owner dies, their assets may need to be sold in order to pay off debts or to settle the estate. These properties are also often sold at a discount.

Why do Real Estate Investors Want to Find Distressed Properties? 

Finding and purchasing distressed properties is a key part of successful real estate investing -- wholesaling, flipping, or BRRRing -- because they can be bought at a significant discount. 

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For example, let's say you find a property that you think is worth $100,000. But the owner owes $120,000 on the mortgage and is in danger of foreclosure. You might be able to purchase the home for $50,000 from the bank after the foreclosure process is complete. That's a $50,000 discount! 

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You could also try a strategy called a short sale to purchase property before foreclosure to help the seller a little more. A short sale is when you make an offer to bank for less then the note.

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Or, let's say you find a property that's in need of significant repairs. The owner is motivated to sell and you're able to negotiate a purchase price of $50,000. But after making the necessary repairs, you think the property is worth $100,000. You've just doubled your money!

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Sometimes, a distressed property is only distressed in the sense that the owner wants to sell fast — and so they’re willing to accept a cash offer. 

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Of course, finding and purchasing distressed properties is not without its challenges. These properties can be difficult to find and they often come with a host of problems, such as code violations, liens, or back taxes. But for experienced investors, these challenges can be overcome and the rewards can be great. 

Pros & Cons of Buying Distressed Real Estate

Here's a quick walkthrough of the pros and cons of buying distressed real estate…

Pros 

Discounted Purchase Price: As we've seen, one of the biggest advantages of buying distressed properties is that they can be purchased at a significant discount. 

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Motivated Sellers: Distressed property owners are often motivated to sell quickly, which gives investors an advantage when negotiating a purchase price. 

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More Negotiating Power: Because distressed properties are often sold as-is, investors have more negotiating power when it comes to the purchase price and terms of the sale. 

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Less Competition: Many investors shy away from distressed properties because of the challenges they can pose. This can mean less competition for investors who are willing to take on these types of properties. 

Cons

Difficult to Find: Distressed properties are not always easy to find. They are often not listed on the MLS and can be difficult to locate. 

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Comes With Challenges: As we've seen, distressed properties often come with a host of challenges, such as code violations, liens, or back taxes. 

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Requires Experience: Buying and selling distressed properties is not for the faint of heart. It requires experience, knowledge, and a willingness to take on risk. 

10 Signs a Property is Distressed

By now you should have an idea of what a distressed property is and why they’re valuable for real estate investors. 

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But how do you know a property is distressed? 

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Here are 10 signs. 

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1. The property is in disrepair.
2. The property is vacant. 
3. There are code violations. 
4. There are liens or back taxes owed on the property. 
5. The owner is motivated to sell quickly. 
6. The asking price is significantly below market value. 
7. The property is not listed on the MLS. 
8. The owner is difficult to reach or unresponsive. 
9. The deed has been transferred to a third party. 
10. The property has been sitting on the MLS for over 6-12 months. 

10 Proven Ways to Find Distressed Properties in Your Market

Now let's talk about how you can find distressed properties in your market. 

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Here are 10 proven ways.

MLS

The MLS (Multiple Listing Service) is a database of all the properties listed for sale by real estate agents. While not every property will be listed on the MLS, many are. 

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For investors looking for distressed properties, the MLS can be a great place to start their search. 

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To find distressed properties on the MLS, look for properties that have been listed for sale for a long time (6-12 months or more) or that have had multiple price reductions. These are often signs that something is wrong with the property and the owner might be willing to accept a cash offer. 

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Another way to find distressed properties on the MLS is to look for properties that are being sold as-is or that have a lot of disclosure language in the listing description. This can be a sign that the property has some challenges that the owner is trying to disclose upfront. 

Direct Mail

Direct mail is a tried-and-true method for finding distressed properties. 

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The process is simple: you send a letter or postcard to homeowners in a specific area and let them know that you're interested in buying their property. 

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Many times, these letters will result in calls from motivated sellers who are looking to unload their property quickly. 

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To find the best list of homeowners to target with your direct mail campaign, look for lists of owners of vacant properties, properties with code violations, or properties that are behind on their taxes. 

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These are all good indicators that the owner might be motivated to sell. 

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For more tips on direct mail, check out our direct mail marketing guide over here. 

Wholesalers

Wholesalers are real estate professionals who find deeply discounted properties and then sell them to investors for a quick profit. 

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In other words, they do all the hard work of finding the deals so you don't have to. 

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If you're looking for distressed properties, wholesalers can be a great source. 

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To find wholesalers in your area, start by searching online. Google "we buy houses" or "wholesale properties" followed by your city and state. This should give you a good list of wholesalers to contact. 

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You can also search for wholesalers on social media platforms like Facebook and LinkedIn. 

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Once you've found a few wholesalers, reach out and introduce yourself. Let them know you're looking for deeply discounted properties and see if they have any deals that fit your criteria. 

Property Auctions

Another great way to find distressed properties is to attend auctions. 

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Auctions are often held for properties that are in foreclosure or that have been repossessed by the bank. 

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While these properties can be a great deal, they also come with some risks. 

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For one, you typically have to pay for the property in cash and you won't be able to inspect it beforehand. This means you could end up paying for a property that needs a lot of repairs that you weren't aware of. 

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Another risk is that the previous owner could still have some legal rights to the property, which could complicate your ownership. 

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Before bidding on a property at auction, make sure you do your due diligence and know what you're getting yourself into. 

Driving For Dollars

Driving for dollars is a technique that investors use to find distressed properties. 

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The process is simple: you drive around a specific neighborhood looking for signs of distress, such as houses in disrepair, unkempt yards, or boarded-up windows. 

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When you find a property that looks like it might be distressed, you write down the address and research the property to see if it's a good deal. 

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This technique takes a lot of time and effort, but it can be a great way to find deeply discounted properties that nobody else knows about. 

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Real Estate Agents

Real estate agents are another great source for finding distressed properties. 

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Many times, agents will have access to MLS listings that aren't yet available to the public. 

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They might also know about properties that are going to be foreclosed on or that are being sold by an executor of an estate. 

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As a real estate investor looking for distressed properties, it’s worth your time to network with real estate agents. Let them know that you're interested in finding distressed properties. 

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They should be able to help you find some great deals. 

Craigslist

Craigslist can be a great place to find distressed properties. 

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To find these properties, search for terms like "handyman special," "fixer-upper," or "as is." 

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You can also search for specific types of distressed properties, such as foreclosures or short sales. 

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Just remember that when you're dealing with properties on Craigslist, you'll need to be extra careful. 

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There are a lot of scammers on the platform, so make sure you do your due diligence before working with anyone. 

Lawyers

Lawyers often have access to properties that are in distress. 

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This is because they sometimes work with clients who are going through a divorce or estate sale. 

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If you're looking for distressed properties, it's worth your time to build relationships with lawyers in your area. 

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Let them know that you're interested in finding these types of properties and see if they have any leads for you. 

Pull & Filter Absentee/Vacant Lists

One of the most valuable lists for finding distressed properties is what's called an absentee/vacant list. 

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This is a list of properties that are owned by absentee landlords (meaning the owner doesn't live in the property) that are also vacant (meaning no one lives in the property). You can probably imagine why these are prime candidates for being distressed properties. 

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You can pull this list from a real estate data tool like PropStream. Once you have the list, you can filter it to find properties that fit your criteria. 

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For example, you might want to filter for properties that have been vacant for more than six months and are absentee. 

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This is a great starting place. 

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And if you need real estate investing software to manage and filter your data (which you do), check out REISift. 

Zillow / Redfin

Another great place to find distressed properties is online real estate listings websites like Zillow, Redfin, Realtor.com, and others. 

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To find distressed properties on these websites, simply conduct a search and filter for properties that are in foreclosure or short sale.  

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You can also search for properties that are being sold "as is." 

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This is a great way to find deeply discounted properties that you can fix up and sell for a profit. 

How to Find Distressed Properties Online (Virtual Investing)

Virtual real estate investing is a great way to find distressed properties without ever having to leave your couch. 

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There are a few different ways to do this. 

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One way is to search for properties that are in foreclosure or short sale on Zillow, Redfin, Realtor.com, and other online real estate listings websites. 

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You can also search for properties that are being sold "as is." 

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Another way to find distressed properties virtually is to use a real estate data tool like PropStream. 

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With PropStream, you can pull lists of absentee/vacant properties and filter them to find the best deals. 

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You can also use PropStream to pull lists of properties that are in foreclosure or short sale. 

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This is a great way to find deeply discounted properties that you can fix up and sell for a profit. 

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The bottom line is that there are a number of ways to find distressed properties, both online and offline. 

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The best method for finding these types of properties will vary depending on your market and your preferences. 

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However, the methods outlined above should give you a good starting point for finding distressed properties in your market. 

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If you want to learn more about virtual wholesaling and how to find deals online, check out our virtual wholesaling guide here. 

How to Find Motivated Sellers

Motivated sellers and distressed properties go hand in hand. 

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Motivated sellers are exactly what they sound like: homeowners who are motivated to sell their property quickly. 

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There are a number of reasons why a seller might be motivated. 

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For example, they might be going through a divorce, facing foreclosure, or moving out of state. 

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Whatever the reason, motivated sellers are usually willing to negotiate on price and terms in order to get rid of the property quickly. 

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This makes them a great target for real estate investors who are looking for a good deal. 

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To learn how to find these people, check out our full guide to finding motivated sellers over here.

How to Find Distressed Commercial Properties

Investing in commercial real estate can be a great way to make a lot of money. 

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However, it can also be a great way to lose a lot of money if you're not careful. 

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One of the best ways to protect yourself when investing in commercial real estate is to focus on distressed properties. 

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Distressed commercial properties are properties that are in foreclosure, short sale, or otherwise facing some sort of financial distress. 

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These properties can be a great investment because they are often deeply discounted. 

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This gives you a built-in equity cushion that can help protect you if the property doesn't perform as well as you expected. 

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To find these properties, you can use the same tips we listed above -- additional tips would include...

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• Checking with your local Chamber of Commerce or business association
• Networking with other commercial real estate investors
• Working with a good commercial real estate broker 

How to Buy Distressed Properties & Make a Profit

By now you have a good idea of what distressed properties are and even how to find them. 

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But there’s still a big question mark…

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How do buy these properties and make a profit? 

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Here are the steps. 

1. Do Your Due Diligence

Before you even think about buying a distressed property, you need to do your due diligence. 

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This means researching the property, the neighborhood, and the market conditions. 

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You also need to have a clear understanding of what it will take to fix up the property and how much it is likely to sell for once it is repaired.  

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This step is critical because it will help you determine whether or not the property is actually a good deal. 

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Get a Detailed Estimate of Repairs

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Once you have done your due diligence and decided that a distressed property is a good deal, the next step is to get a detailed estimate of repairs. 

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This estimate should be as specific as possible and should include both the cost of materials and the cost of labor. 

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If you are not experienced in estimating repairs, it is a good idea to hire a contractor to do this for you. 

2. Get a Detailed Estimate of Repairs

Once you have done your due diligence and decided that a distressed property is a good deal, the next step is to get a detailed estimate of repairs. 

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This estimate should be as specific as possible and should include both the cost of materials and the cost of labor. 

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If you are not experienced in estimating repairs, it is a good idea to hire a contractor to do this for you.  

3. Determine Your Investing Model 

The next step is to determine your investing model. 

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There are a few different ways to make money with distressed properties. 

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You can fix and flip the property, rent it out, wholesale, or wholetail it. 

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Each of these options has its own set of pros and cons that you need to consider before making a decision. 

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And the method you choose will be at least partly determined by the property you found. 

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Here's a quick overview of each investing method...

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Fix and flip: This is where you buy a property, fix it up, and then sell it for a profit. 

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Renting: This is where you buy a property, fix it up, and then rent it out to tenants. 

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Wholesaling: This is where you find a distressed property, negotiate a contract with the seller, and then sell that contract to another investor. 

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Wholetailing: This is where you find a distressed property, make minimal repairs, and then sell it directly to a retail buyer. 

4. Calculate Your Max Offer

The next step is to calculate your max offer. 

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This is the highest amount of money you are willing to pay for the property. 

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Your max offer should be based on your estimated rehab costs, your expected selling price, and your desired profit margin. 

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It is also a good idea to leave some room for negotiation.  

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If you want to make a profit of $20,000 on the property, your max offer might be $10,000 less than that. 

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This will give you some room to negotiate and still make the profit you are looking for. 

5. Call The Seller

Once you have your max offer calculated, it's time to call the seller. 

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To get their phone number, you'll likely need to skip trace their physical address — which you can easily do with REISift. 

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When you do this, it is important to be friendly and professional. 

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You want to build rapport with the seller so that they are more likely to accept your offer. 

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It is also a good idea to let them know that you are a cash buyer and that you are ready to close quickly. 

6. Make Your Offer

Once you have built rapport with the seller, it's time to make your offer. 

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Start by telling them what you are willing to pay for the property. 

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If they counteroffer, be prepared to negotiate. 

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But don't go over your max offer. 

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Expect this process to require a few follow-ups and several conversations. Low-ball offers typically take a few touch-points to accept. 

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Once you have reached an agreement, it's time to move to the next step. 

7. Inspect The Property

Before you close on the property, you'll either want to inspect the property yourself or have someone who's experienced do so. 

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This step is important because it will help you identify any potential problems that need to be addressed before closing. 

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It's also a good idea to get an estimate of repairs at this time so that you can be sure you are still making a profit. 

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If the inspection reveals problems that are too expensive to fix, you may need to renegotiate your offer with the seller. 

8. Close On The Property

Once you have inspected the property and are satisfied with it, it's time to close the deal. 

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This process will vary depending on your state and local laws. 

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But in general, you'll need to sign a purchase agreement and then pay the agreed-upon price for the property. 

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After that, the property will be officially yours. 

9. Build a Scaleable Business

Obviously, investing in just one distressed property isn’t going to make you a millionaire. 

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The goal of real estate investing is to build wealth — increase your net worth, create passive income, and scale so that you own not just one property… but hundreds of properties. 

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How do you do that? 

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Well… you’ve got to build a business. 

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You’ve got to build a machine that finds distressed properties and turns those properties into cold hard cash. 

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It just so happens that we’ve created a challenge that will help you create just that type of business. 

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It’s called the Data to Dollars Challenge — because it’s all about turning real estate data into dollars over and over again. 

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Inside, you’ll walk hand-in-hand with Tyler Austin, a successful real estate investor and founder of REISift, as he builds a thriving real estate investing business from scratch. 

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If you want to build real wealth through real estate…

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…rather than just do a few deals here and there. 

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Then this challenge is an absolute must. 

Final Thoughts on Finding Distressed Properties

There are a number of ways to find distressed properties in your market. 

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The best method for finding these types of properties will vary depending on your market and your preferences. 

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However, the methods outlined above should give you a good starting point for finding distressed properties in your market. 

If you want to learn more and you’re ready to invest in yourself, check out our Data to Dollars Challenge — it’ll teach you everything you need to know to build a successful real estate investing business.