Turning Real Estate Lemons Into Lemonade
How can investors turn today’s ripe real estate lemons into financial lemonade?
There is a new crop of ‘lemon’ properties ripening out there. This low hanging fruit can actually be extremely profitable for the entrepreneurial property investor that recognizes the opportunity, and squeezes it.
Beyond Legacy Foreclosures
There are still a significant amount of foreclosures and pre-foreclosure properties out there. They are scattered around local neighborhoods, and many are publicly listed online via sites like Zillow. Some of these distressed properties are horribly priced and may not be ‘deals’ at all. Others may be true lemons that will just cost many times more than they are worth to redevelop. Yet, there are certainly some golden deals just waiting for someone to get in touch and lock them up.
There is also a whole new batch of potential deals becoming available out there, and that doesn’t even include freshly defaulting loan modifications. These are properties which were picked up by amateur real estate investors who didn’t invest in their education, didn’t complete their due diligence, and made mistakes or simply didn’t anticipate factors which sabotaged their expectations. Now they desperately need to unload them, fast.
Sour to Sweet
This big and growing pool of investor ‘lemons’ is still largely ignored. This fact can make these deals especially attractive to real estate investors who have been battling heavy competition in their local markets.
What may be dead weight or a problem property to one individual, may offer incredible profitability and opportunity to another who has invested in their real estate education or has a pro coach in their corner.
These properties can be lumped in this category for a number of reasons, including:
- Inaccurate evaluation caught the investor off guard
- Owners ran out of money to complete rehab or market the property
- Poor inspections didn’t uncover all of the property issues
- Lack of a resale network
- Property was over-improved
- Problem tenants or occupants
- Unexpected liens
- Life issues changed owner’s circumstances
Many of these issues can be overcome by a more experienced investor, or at least one with a good system and strategy.
How & Where to Find Them
Many of these properties are not on the MLS, and are not actively being marketed for sale. Often the current owners are just stumped for what to do, don’t think they can sell as-is, or are just embarrassed about feeling like they failed.
So how do you find them?
- Through real estate agents
- Marketing to non-occupant owners
- Spotting unfinished rehabs
- Vacant properties
- Properties that have been put back on market fast, but haven’t sold
- Foreclosure lists
- Local real estate investor meetings
- Outreach to investors online
- Online forums like BiggerPockets
- Lenders and note investors
Some of these deals are very straightforward sales. Others may require more creative structuring. There may even be partnership opportunities, and good connections for mentoring newer investors to help them grow in doing better deals or bringing you more inventory.
The Benefits of Investor Bailout Deals
- Helping the local community be free of blight
- Preserving the industry and local property market
- Providing a good product to end user renters and buyers
- Ease of working with other investors
- Availability of creatively structured deals and flexible terms
- A chance to pass on your knowledge and help others
Tips for Staying Profitable
While this can be a highly profitable and rewarding niche it is important not to get stuck with real lemons, or wind up underwater in your lemonade. That means not repeating their mistakes.
- Constantly work on your real estate investing education
- Improve your deal evaluation methods
- Complete your due diligence, always
- Expect and prepare for the unexpected
- Build up reserves and lines of credit to ensure never running out of cash
- Build connections so that you always have a resale market
There are still many deals out there. Sadly, some of them are coming from aspiring investors that didn’t bother to learn before they tried to earn. They can be helped, and many of these properties can still be win-win-win deals for everyone. It may take some proactive outreach and creative deal structuring, but this is a niche definitely worth exploring for those seeking more volume.