📘 What is a Distressed Property?

A distressed property is a piece of real estate that is either in foreclosure, under threat of foreclosure, or owned by a seller facing financial hardship. These properties are often sold below market value to encourage quick sales, making them attractive to real estate investors.

Common types of distressed properties include bank-owned homes (REOs), short sales, and properties needing significant repairs or code compliance.

📌 When and Why It’s Used

Investors seek out distressed properties as an opportunity to buy low, renovate, and either resell (flip) or rent for long-term profit. These deals can offer high return potential but often require more effort, risk, and capital than traditional purchases.

Distressed properties are also used by wholesalers, house flippers, and rental portfolio builders looking to maximize ROI by adding value through improvements or strategic acquisition timing.

🧮 How It’s Calculated or Applied

There is no single formula for identifying a distressed property, but investors evaluate price relative to market value, repair costs, and potential resale value. One common approach is the Maximum Allowable Offer (MAO) formula used in property flipping.

Here's how investors often calculate a safe purchase price:

ARV stands for After Repair Value, and 70% is a common buffer used to ensure profitability. The percentage can be adjusted based on market conditions and investor risk tolerance.

✅ Pros

• Opportunity to buy below market value
• Potential for high ROI after renovation or resale
• Flexible exit strategies (flip, rent, wholesale)

⚠️ Cons

• Often requires significant repair or renovation work
• May involve legal or title complications
• Can take longer to close or finance compared to traditional deals