What is a Distressed Property?

 A distressed property is, in its most basic terms, real estate that’s either on the brink of foreclosure or has already been repossessed. 

However, the term is often misunderstood. This leads to many people believing that it means a property that needs a level of TLC to bring it back to a habitable standard. Such a “fixer-upper” may also be distressed (and vice versa) but this is not what the term means in the world of real estate.

Dispelling the Myth: Distressed vs. Fixer-Upper vs. Rehab 

• What is a distressed property?
• What is a fixer-upper?
• What is a rehab property?

What is a distressed property? 

As we’ve already mentioned, a distressed property is one on which the current owners have defaulted on multiple payments. This means that the lender—be it a bank, money lender, or other financier who fronted the money for the purchase—has either taken ownership of the property or is imminently about to do so.

There are further sub-categories as follows: 

• A foreclosed property: After multiple missed monthly repayments, a default notice has been issued to the property owner. The home is most usually sold at auction.
• Preforeclosure: The owner has missed several repayments (typically they’re now 90+ days in default) but the lender has not yet officially taken ownership.
• Short sale: Rather than foreclosing, the lender and owner have agreed to sell the property below market value. This removes the credit-damaging black mark being filed against the owner, which would make it virtually impossible to get any credit for many years.
• Real-estate owned (REO): This is a home that’s been foreclosed and failed to sell at auction. The lender (the bank) is now the legal owner and is selling the property.

While many distressed properties require a little (or, indeed, a lot) of work to bring them up to standard, this isn’t necessarily the case. The term defines the defaulting on the mortgage payments, not that the house needs work and/or modernization. 

However, the nature of distressed properties often means that they are also in need of some level of repair. Depending on how much is needed, this could be described as either a fixer-upper or a rehab property.

What is a fixer-upper? 

A fixer-upper is the term used for a property that’s in less-than-perfect condition. However, it’s still habitable. This means it’ll have a functioning kitchen and bathroom—albeit they may be somewhat outdated and tired.

Other typical needs of a fixer-upper include: 

• The décor might need refreshing.
• Flooring and/or carpets need replacing.
• It requires new light fittings.
• The outside space needs landscaping.

In short, the work that needs doing shouldn’t be out of the scope of the keen DIYer. 

Unfortunately, the definition between a fixer-upper and a full rehab property has become a little blurred. The latter requires far more work to get into a state to either move into, rent, or resell.

What is a rehab property? 

A rehab property requires more intense work. This might include, but isn’t limited to, a new roof, structural work, rewiring, plumbing, layout changes, kitchen, and bathroom refits, etc. 

Some properties fall in between being a fixer-upper and a full-scale rehab. When assessing which it might be, if you can live in the property without it being a health and safety hazard, it would fall under the fixer-upper banner. If not, it’s a rehab. 

Distressed, Fixer-Upper, Rehab…? Contact BRRRR Loans to Sort Your Finances.

Whatever your investment angle, BRRRR Loans is a leading financier who can assist with your next property purchase. From Fix & Flip loans to DSCR, commercial loans, bridge loans, and everything in between, if you demand the best rates, fastest close period, and most beneficial lending criteria, then we need to speak. 

Discover our range of lending options at https://www.brrrr.com.