Finding Run Down Property For Sale [Get Deeper Deals]

Published on June 30, 2023

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Finding Run Down Property For Sale [Get Deeper Deals]

Finding Run Down Property For Sale [Get Deeper Deals]

Run-down properties are often priced below market value due to their condition. They can be transformed into profitable ventures for a real estate investor with careful planning and strategic investment. 

There are various methods used in discovering run-down properties, including exploring real estate listings, auctions, and bank-owned property listings, employing more direct strategies such as neighborhood scouting and contacting owners directly. Other resources include public tax records and properties with delinquent mortgage payments, which can hint at potential sales. 

Ready to embark on run-down property investing? You found the right blog! This covers everything about run-down properties, from where to find them, their benefits and risks, how to buy them, and so much more!

What is a Run-Down Property

What is a Run-Down Property?

A run-down property in real estate refers to a building or piece of land that has deteriorated or fallen into disrepair over time due to lack of maintenance, neglect, or age. This could be residential properties such as houses and apartments or commercial properties like retail spaces, warehouses, or offices.

Factors such as peeling paint, broken windows, dilapidated roofing, structural damage, and outdated electrical and plumbing systems often characterize a run-down property. These properties may also have unkempt yards, overgrown vegetation, or other indications of neglect.

The condition of a run-down property can range from moderate wear and tear to severe deterioration, potentially to the point of being uninhabitable or unsafe. It is worth noting that the definition of a run-down property can be somewhat subjective, varying based on individual perception and local standards.

Despite their current state, vacant run-down properties sold as-is often present potential opportunities for an investor or the right buyer looking for a project. These properties typically sell for less than market value, and with the right renovations and updates, they can increase in value substantially, offering significant returns on investment. This practice, known as "flipping," is popular in the real estate market and can be profitable if carried out correctly.

However, investing in a run-down house for sale in the real estate landscape also comes with risks. Significant unforeseen problems may emerge during renovation, like structural issues, pest infestations, or severe mold growth. These can result in costly repairs and could cause the renovation budget to inflate rapidly. Therefore, a comprehensive property inspection is crucial before purchasing a run-down property.

Derelict vs. Run-Down Homes

The difference between a derelict and a run-down home primarily revolves around the extent of the property's disrepair.

A run-down home typically refers to a property that, while showing signs of neglect and needing maintenance or repairs, is still habitable. It might have problems like outdated fixtures, peeling paint, old plumbing or electrical systems, or minor structural issues. 

However, the property can be lived in or used with some level of comfort and safety, albeit perhaps not ideally. It generally just needs some updates or repairs to bring it back to good condition.

On the other hand, a derelict property is generally uninhabitable and may pose safety hazards. It has typically been abandoned and left without care for an extended period, leading to extensive damage and deterioration. 

Issues could include significant structural problems, severe water damage, extensive mold or pest infestations, or a complete lack of essential services like electricity or running water. 

Derelict properties often require substantial work, including major structural repairs or even demolition and rebuilding, to make them safe and habitable again.

While both types of properties can provide investment opportunities, they typically appeal to different types of investors. Run-down homes are often targeted by those looking to make moderate repairs and updates, then resell or rent the property. 

Derelict properties can require more significant investments and are often targeted by developers or experienced investors who are prepared for a major project.

Why are Run-Down Homes Valuable for Real Estate Investors

Why are Run-Down Homes Valuable for Real Estate Investors

Many real estate investors target run-down homes because of the profitable opportunities they offer. If you are also into fixer-uppers, then read along for more of its benefits.

Cheaper Purchase Price

Run-down homes usually have lower market values than properties in good condition in the same area. This can make it easier for investors or a house flipper to purchase these properties outright or secure a mortgage for them.

Potential for High Returns

With the right repairs and improvements, a run-down property can significantly increase in value, allowing and investor or homebuyer to sell it for a profit or rent it out for a higher rate. This process is known as “flipping.”

Tax Advantages

In some areas, investors can claim tax deductions for the cost of repairs and improvements made to investment properties.

Land Value

In some cases, the value of a run-down property lies in the land itself, especially in prime locations. Investors might buy a run-down property, demolish it, and build a new structure in its place to increase the return on investment.

Supply and Demand

Depending on the real estate market, there can be a high demand for fully renovated homes, and supply might be low. This gives investors the opportunity to fill a gap in the market and potentially sell quickly.

Customization

Run-down homes often need significant renovations, giving investors the chance to customize the home to meet the demands and tastes of the current market, thus increasing its appeal and potential selling price.

You have the liberty to add or improve the master suite, reconstruct or redesign a home office to give it more natural light, convert the property into an open floor plan, add a terrace, and basically, convert the property into a stunning dream home that is reasonably priced.

Risks Involved in Buying Run Down Homes

While buying and renovating run-down homes can yield significant profits for real estate investors, there are still some risks involved in this venture. You should be aware of all of these risks before finding your first deal. 

Financing Risks

Securing funding for a run-down property might be more difficult. Some lenders hesitate to provide loans for properties in poor condition since they assume they are associated with a lien. Additionally, if the renovation costs run over budget, it may be challenging to secure additional financing.

Environmental Hazards

Older, run-down homes can sometimes contain hazardous materials such as lead paint or asbestos. The costs of safely removing and disposing of these materials can be high.

Underestimated Costs

Renovation projects often cost more than initially expected due to unforeseen issues. An investor might discover problems on an unoccupied property, such as structural damage, outdated electrical or plumbing systems, or hidden pest infestations that were not apparent during the initial inspection. These issues can significantly increase renovation costs.

There's also the fact that you have to pay for inspection fees, title insurance, legal fees, appraisal fee, and closing costs before you get the home. This may incur a large amount of money even before you officially buy the home.

Delays

It may take longer before the house  is ready to be renovated due to a variety of factors such as bad weather, contractor scheduling issues, or unforeseen repairs. 

Delays not only increase carrying costs (such as mortgage, insurance, and property taxes), but they also delay the property's sale or rental, pushing back the time when you can start earning a return on your investment.

Overcapitalization

There's a risk that an investor may spend too much money on a renovation (the opposite of selling the house without staging), making the home too costly compared to similar properties in the neighborhood. 

This situation, known as overcapitalization, could make the home harder to sell. It may also decrease the overall return on investment when you sell your home.

Market Changes

Real estate markets can be unpredictable. If the market declines during the renovation period even though the home is ready to be sold, the property’s value might decrease, leading to lower-than-expected returns or even losses when you sell the home.

Regulatory Issues

There can be zoning restrictions, building codes, or historical preservation rules that limit what can be done with a property. Non-compliance with these regulations can lead to fines, delays, or necessary changes in plans. But don't let these scare you off.

Where to Find a Run-Down Home for Sale

Where to Find a Run-Down Home for Sale

If you’re ready to make your first flip and you’re looking for a run-down property to make it happen, we made the search easier for you. Here are some of the proven ways to find sought-after run-down properties for sale.

Bank-Owned Property Listings

Also known as REOs (Real Estate Owned), these are properties that have been foreclosed upon and are now owned by the bank. Since no one lives in them anymore, some of them are already run-down, although there are still some that are well-maintained.

Banks often list these properties for sale on their websites. Since banks aren’t in the business of owning homes, they're often eager to sell, and these properties can be a good deal since their current appraised value is particularly low.

Home Auctions

Run-down properties (ex. family home) or properties that are unclaimed are often sold at auctions due to foreclosures or unpaid taxes. You can find information on upcoming auctions through your local county's website or through private auction companies. 

Keep in mind that auction purchases to fulfill the foreclosure process often come with additional risks, such as the inability to inspect the property beforehand and the above your budget sale price.

Tax Records

Public tax records can be a great source to find run-down properties to convert into income properties. Owners who didn't pay property taxes for some time may be in financial distress, which often means the property needs are neglected. 

You can access home's tax records to find homes to flip through your local county's tax assessor’s office, county clerk's office, or website. Some areas also have online databases that allow you to search for properties with delinquent taxes.

MLS Listings

The Multiple Listing Service (MLS) is a database that real estate agents use to list and find properties for sale. Listings might openly describe a property as needing work or owners abandoned. The photos and price might suggest it. Experienced agents can help you spot these properties easily.

Driving for Dollars

This old-school method involves driving around neighborhoods looking for abandoned homes for sale that appear run-down or neglected. 

Look for overgrown grass, boarded-up windows, walls with vandalism, or other signs of disrepair in houses located near you. Once you've found abandoned properties or run down homes, you can use public records or online services like a driving for dollars app to find the owner's contact information.

Local Real Estate Agent

A local real estate agent's knowledge and connection can be a valuable resource when you want to buy an abandoned and run-down property. They may also have access to off-market listings or be aware of properties that are about to be listed.

FSBO Homes

FSBO (For Sale By Owner) homes are sold directly by the homeowner instead of through a local agent. 

These properties are often listed on local classified websites or FSBO-specific online platforms and are available for potential buyers. Some of these homes may be run-down properties sold at a lower price.

Door-Knocking

Another old-fashioned but potentially effective method is door-knocing. It involves going door-to-door in chosen neighborhoods, expressing your interest in buying properties, and asking homeowners if they're interested in selling. This method can help uncover deals that are not yet on the market.

Properties With Delinquent Mortgage Payments

You can find properties with delinquent mortgage payments through services that aggregate "pre-foreclosure" listings. These services usually require a subscription.

Keep in mind that it's important to approach these situations sensitively, as owners may be going through a difficult time.

Out-Of-State Owners

Out-of-state owners may be more inclined to sell, especially if the property is run-down, as they might not have the time or resources to manage and maintain it. 

You can find these owners through public property records, which list the owner's mailing address, or through paid services that compile this data. Reach out to them via a letter expressing your interest in purchasing the property.

How To Find Run-Down Commercial Real Estate For Sale

If you want to diversify your investment portfolio and you have enough budget for big purchases, you might want to buy run-down commercial properties. Here’s how to find these deals.

Networking

Networking is one of the most effective ways to find run-down commercial real estate properties. This could be through real estate investor groups, industry conferences, and local business meetups. 

Establishing relationships with other real estate professionals such as brokers, agents, appraisers, and property managers, can also be very beneficial. These individuals often have insider knowledge about the market and can provide valuable leads on a fixer-upper. Utilizing social networks like LinkedIn to connect with these professionals and join relevant groups can also give you great opportunities.

Lenders

Banks and other lending institutions often have real estate-owned properties (REOs) in their possession that they are eager to sell. These properties have been foreclosed due to the previous owner's failure to meet mortgage obligations. 

Contacting local and national banks directly and asking about their REO listings can reveal potentially profitable opportunities. Similarly, smaller private lending firms, which might have taken over properties due to loan defaults, are also worth approaching.

Commercial Investing Websites

Numerous websites list commercial real estate for sale, including run-down shopping centers, etc. Websites like LoopNet, CREXi, Realtor.com, and Zillow have extensive commercial properties listed for sale, which can be filtered by location, price, property type, and more. 

Some of these sites may even have specific sections for distressed properties or properties that need repairs. Online property auctions, like Auction.com, also list commercial properties and can be a good source for finding run-down or foreclosed properties.

Steps in Buying a Run-Down Home

Purchasing a run-down home as a real estate investment begins with extensive market research. Investors need to understand the local real estate market, including property values, rental rates, and consumer demand. Identifying areas that offer growth potential is key to maximizing returns. 

The next step is finding a property. Investors can use multiple avenues to uncover potential opportunities like the ones we mentioned in the previous section.

After identifying a potential property, investors need to thoroughly evaluate its condition. This involves assessing for any structural issues, checking the condition of the roof, plumbing, and electrical systems, and inspecting for any signs of water damage or pest infestations. 

It's also necessary to account for the potential cost of renovations and updates needed to make the property attractive to future buyers or tenants.

Securing financing is another critical step. Investors may opt for traditional mortgages, hard money loans, FHA 203k loans, or other options based on their financial situation and the property's condition. 

Once financing is in place, investors can make an offer, ideally contingent on a professional inspection to uncover any hidden issues. If everything checks out, the purchase can proceed to close. 

After acquiring the property, investors then carry out necessary renovations before renting or selling the property, depending on their investment strategy. 

How to Finance the Purchase and Repair of a Run-Down Home

Financing the purchase and renovation of a run-down home can be accomplished through several ways. One such method is through a conventional mortgage, which may be viable if the property is habitable and meets certain lender standards. However, this type of loan generally doesn't include the cost of significant repairs or renovations.

Hard money loans are another option. These are short-term loans with relatively high interest rates, offered by private investors or companies. They're particularly useful for properties in poor condition or when the borrower doesn't qualify for traditional financing. The convenience and speed of obtaining a hard money loan come with the trade-off of higher interest rates and typically shorter repayment terms.

If you already own a property, you might consider cash-out refinancing, which allows you to refinance your existing mortgage for more than you currently owe. The difference is provided to you in cash, which can be used for the renovations.

Another similar option is a Home Equity Line of Credit (HELOC) or a Home Equity Loan. These financing methods allow you to borrow against the equity in a property you already own. The difference between the two lies in the disbursement of funds: a HELOC gives you a line of credit to draw from as needed, while a home equity loan provides a lump sum.

Lastly, an FHA 203k loan, insured by the Federal Housing Administration (FHA), can be a valuable tool. This loan allows you to purchase a property and finance the necessary renovations in one loan, and it's specifically designed for properties in need of rehabilitation. The funds from these loans can be used for a wide range of repairs and improvements.

Summary: Finding Run Down Property For Sale [Get Deeper Deals]

Finding and investing in run-down properties can present significant opportunities for real estate professionals. Whether through listings, auctions, tax records, or driving for dollars, these properties provide potential for substantial profit, especially when purchased below market value. 

It's essential, however, to conduct thorough due diligence and financial analysis to ensure the investment makes sense. Evaluating the property's condition, estimating renovation costs, and securing appropriate financing are also critical steps in this process. 

If you still haven’t found a run-down property through the ways we shared in this blog, you still have another option. That is to purchase highly motivated leads from Property Leads. All our seller leads are generated through SEO with a high conversion rate.

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