Distressed Property Should you buy it The Pros and the Cons

, Life@UAE

Bargains are the driving force for us, and this works even more, especially in the case of prospective homebuyers or people looking to invest in property to start business in UAE, or for LLC company setup in Dubai or Freezone business setup in Dubai.

But when a property is being sold for a very low price, then there must be a good reason behind it. This type of property is typically termed as ‘distressed property”.

Let’s see what are the pros and cons of buying a distressed property.

The Plusses…

Price might be very enticing, so much so, that you might want to just buy in, without a second thought; afraid that the owners might change their mind and increase the price. So, it’s important to understand the ‘foreclosure bit’ about the transaction. The foreclosure will usually be priced below the market value as the seller will be in a hurry to dispose the property off. That could be an entirely personal thing – selling the property that is – as the owner might want the cash to finance something or for repairs of some other house, etc.

So, if you are a prospective homebuyer looking for a bargain, then this might just be the best time. The price of the property is low, mortgage rates would be low; and, you can invest in it and make a handsome profit later. Or, if you want to stay in and this is going to be your first home, then you are anyways driving a bargain and getting good money for it. The value of the property is bound to rise…

The Minuses…

The main risk is also the foreclosure bit, since the property is already at a low price. This means that if you are buying a house that is in bad shape, or has fallen into disrepair because the previous owner didn’t have the funds to repair or maintain the property then you would need to set aside money for getting the repair work done. This means hiring contractors, supervising their work and paying for materials to improve it. Usually, some foreclosures are in bad shape and some are in OK state. Bad shape just means a lot of hard work and money to be spent to get it in order. In fact, some damaged walls might need extensive electrical, plumbing and structural repairs. You will just need to be prepared for financing any and all repairs.

Also, another important thing to know about is the fact that not all distressed properties meet the eligibility criterion for the lenders. So, look out for the condition of the property, before buying in. You might have to engage the services of a professional appraisal agency, to get the property appraised to know if it can be ‘lived in’ and to know the ‘real value of the property.’

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