Decisions Which Need Answering in the ROI Method

The RIO system requires that one purchases a property below market value or that they see a hidden potential which others miss. The most popular method for achieving this time after time is to purchase a distressed property. Some believe that in order to become successful in real estate investing you’ll need to become an expert at purchasing distressed properties, or seeing the hidden potential of a property.

There are three main types of Distressed properties:

• Market Distressed
• Property Distressed
• Personal Distressed

Market Distressed

To understand market distress, one needs to think back to 2010 when the real estate market crashed. There were foreclosed upon properties on almost every block. Home prices fell and lending institutions were taking penny on the dollar to unload their mounting debts. Find a below market value home during such times is not hard, however the investors or at least the average investor has the least amount of control over this type of investment strategy.  If you choose this method of purchasing distressed alone you will be waiting most of the time not investing and building your wealth.

Property Distressed

Property Distressed is when the property itself is in a bad condition to the point where it affects the value of the property. Such properties need a lot of work in order to be comfortable living spaces again. Types of distress which may affect the value of a property include but is not limited to the following:

• Leaking roofs
• Problem foundations
• Pest control (termites, rodent infestation
• Obsolete floor-plans
• Outdated electrical system or plumbing or lack thereof
• Lead based paint
• Asbestos materials

This form of distressed property may be the easiest form to find yourself and all markets. It is also the one I prefer to look for myself. I would not be opposed to taking advantage of a depressed market and purchasing distressed properties from lending institutions. These institutions do not suffer this type of loss as we do. They are insurance backed, to cover such losses. When one studies what happened and the flow of money during the 2008 market crash it doesn’t take long to realize many of the big ones made out like bandits from their actions. Many times, properties which are affected by property distress are properties which a person has left to their heirs and the heirs are out of the area and wish to sell it so they can divide their inheritance. This type of distress is purchasing right and providing a service which the public needs.

Personal Distress

The final type of distress is one which I do not wish to participate in myself for wealth building. It however is one in which many full-time investors and wholesalers seek to target deals. Personal distress involves finding an owner who is in the throws of going through some type of distress in their personal life to the point where their personal finances are affected. The earthquake in Hawi caused many to suffer and go through this form of distress and many wealthy investors stuck deals to enrich themselves from the owners fighting through such a distress.

 But there are other causes for this distress to occur:

• Divorce
• Job loss
• Death of family member
• Unexpected medical expenses

I prefer to not participate in such investment because I do not believe that taking advantage of other in venerable positions qualifies as bettering yourself although it may very well strengthen you financial standing. Yet I would be less than honest if I were to omit this from the blog. Personal distress is the type of distress you may wish to target if you are looking for property types which offer the highest margins.  

Note: Images on this blog site are from a free source or taken by the author. No image or group of photos is intended to represent the people the author serves. The author does not care about Race (that is a politically correct term that he does not like because we are all of the same Race, the Human Race. He prefers the term ethnicity, color, religion, sex, gender, marital status, disability, genetic information, national origin, source of income, Veteran or military status, ancestry, citizenship, primary language or immigration status.) He is a service provider for all people. We will all rise together when we band together and help one another. Joseph Erwin is a Real Estate Broker, DRE # O2131799, and a CA general contractor # B 696662. He’s a member of the CRMLS and The East Valley Association of Realtors located in the Inland Empire region of Southern California.