Distressed Homes in Los Angeles
In every market cycle – boom or bust – there are always a small percentage of assets that fall into the ‘troubled’ category. During the financial crisis of the late 2000’s, roughly one-third of home sales nationwide were deemed distressed. Currently, a much smaller market share is deemed troubled or distressed – think single digit market share.
Even in the Los Angeles metro region, which includes Beverly Hills, West Hollywood and the Hollywood Hills, there are properties that due to a variety of reasons become encumbered.
With patience, due-diligence, and proper analysis these obstacles can be overcome and value created in distressed residential, investment and commercial properties.
The three primary categories of distressed properties are as follows:
In a short sale, the final transaction price is less than the total amount owed the lender (bank, mortgage company, investor). This type of sale closes before the lender forcloses. Thus, negotiation is between the buyer, the owner, and the lender.
A foreclosure is a home that has been repossessed by the lender for failure to pay. Foreclosed properties are typically sold at auction.
Real-estate-owned, or REO‘s, are foreclosed properties that were not successfully sold at auction and are now part of the financial institutions portfolio.
Is The Return Worth The Risk?
In each of the cases, exists an opportunity to purchase an asset at below market value. Yet, there is plenty of risk associated with this marketplace. Often it is not possible to enter or tour the home prior to purchase, and decision making is based on previously available information, current estimates of comparable properties, and the budget for damage repair and upgrades. Further, the owner or lender will not warranty the property and price concessions for damage and highly unlikely. Tax liens, evictions, legal costs and a series of other factors will impact valuation and closing time.
At Native Angelino Real Estate, we provide advice, referrals to legal and tax professionals, and access to necessary resources to evaluate distressed real estate assets.
Tom Levine has earned the Short Sales and Foreclosure Resource Certification From the National Association of Realtors.