How to Find Distressed Properties in Houston

By fixing and flipping or buying and holding, you can reap great financial rewards as a real estate investor in Houston. The first step to success is finding the right distressed property. A property is considered distressed when an owner is no longer able to physically or financially care for their home. This is sometimes reflected in its appearance, the residence clearly worn down and neglected, or it could be at risk of falling into foreclosure as a result of overdue mortgage payments or unpaid taxes.

While distressed properties are relatively common in a sprawling city like Houston, there is even greater demand and competition, so locating the right one for your next venture can be time consuming and challenging if you don’t know where to start.

There are two primary approaches:

  1. Find the deal yourself.
  2. Use a wholesaler or real estate agent.

When searching for properties yourself, you will spend your own time and money. Many people have spent thousands of dollars and countless hours and never found a viable deal. Others have made fortunes finding the deals themselves. In order to be successful, you must have time, money, experience, and ability. It is not easy, and you will usually fail more than succeed in the beginning, but this approach offers the highest upside and is highly rewarding if you can survive the tough times in the beginning.

When buying from agents or wholesalers, the deals will be less time consuming to locate, and you will find more consistent deal flow; however, you will usually pay some premium over what you might pay if buying directly from the seller. That said, you should be willing to pay more because you are saving significant time and money from trying to find the deals yourself.

Before beginning your search, equip yourself with all the knowledge you need to successfully find distressed properties in Houston:


Local Real Estate Wholesalers

Working with real estate wholesalers is usually the most consistent source of opportunities and is a great way to find deals. Wholesalers speed up the process of finding and purchasing distressed properties. They handle most of the heavy lifting, searching for properties and placing contracts on viable investment opportunities. These properties are then marketed to potential buyers such as house flippers, rehabbers, and other property investors who buy or contract the property as a wholesale deal.

Skipping the hassle of not only finding the distressed property but negotiating with sellers and agents, too, is a key benefit of working with a real estate wholesaler; it’s all taken care of for you. Most wholesalers send email blasts advertising new opportunities in Houston. By subscribing to these emails, you ensure you’ll receive a fresh selection of properties to inspect on a continual basis.

It is also important to research the reputation of wholesalers. The industry standard is for the buyer to pay a non-refundable deposit of $2,500 - $5,000 or more. While this is reasonable when dealing with a reputable wholesaler, this business sometimes attracts bad actors, and some investors have lost their deposits to questionable wholesalers. Wholesalers are unlicensed, and there is no regulatory body ensuring fair practices.

Like most industries, it is important to work with people who are referred or who have quality social media and online reputations. There are many trustworthy, quality wholesalers. Take the time to research and determine the best.

Catalyst Funding Can Help You Find Distressed Properties

As a local Houston real estate wholesaler, Catalyst Funding handles the searching, negotiating, and contracting of distressed properties. We’ll help you choose the right property for your next project, and as a hard money lender, we’ll also financially support your fix-and-flip or buy-and-hold strategies. Interested? Contact us today to learn more!


Properties in a State of Neglect

Distressed properties are the easiest to identify when they’re in a visible state of disarray. If you’ve already chosen the Houston neighborhood or region in which you want to purchase a property, then simply driving around the area can yield a number of opportunities. Neglected residences are often marked by overgrown yards, shattered windows, or faded, peeling paint. Newspapers may litter the yard, and notices may be posted on doors and windows.

Whether the owner is physically unable to care for the home or does not have the financial means to maintain it, they may be open to selling as doing so will remove the burden from their shoulders.


Owners with Delinquent Taxes

If a property owner is unable to pay their taxes, then it’s likely they’re unable to pay their mortgage, too. These homeowners are experiencing money problems and could be convinced to sell their residence in order to secure some financial stability.

To find tax-delinquent properties in Houston, it’s a simple matter of checking public records. The local county’s Tax Assessor’s Office or Collector of Revenue Office will have a comprehensive list of these properties. Search “[county name] tax assessor” or “[county name] collector of revenue” online to find their website and browse the listings.


Owners with Delinquent Mortgage Statements

When homeowners fail to meet their mortgage payments, they are at risk for foreclosure. This is commonly referred to as properties that are “underwater” or in pre-foreclosure. Hoping to preserve their credit and avoid long-lasting consequences, these owners are highly motivated to quickly sell their homes. Mortgage-delinquent properties in Houston are listed in the county’s legal paper and can also be found by searching “[county name] legal notices” online.


Properties Legally Obligated to be Sold

Sometimes properties must be sold in the event of bankruptcy or divorce. The owners are typically eager to skip the traditional listing and selling process and instead sell directly to property investors in order to liquidate the assets quickly.

Similar to mortgage-delinquent properties, properties included in a bankruptcy are also published in the local county legal paper; counties are required to provide information about when and where the residences are being auctioned. Furthermore, making connections with Houston divorce and bankruptcy attorneys will prove beneficial. When they encounter a motivated seller, they’ll know to pass on the information to you.


Properties Whose Owners Live Out of State

Owners who live out of state may find it difficult to upkeep their property. Many choose to leave the residence vacant and unused, avoiding the complications of renting out the property and dealing with tenants.

An out-of-state property becomes a financial drain as the owners are not only paying maintenance fees, taxes, insurance, and mortgages on their present residence, but they’re also paying the same fees for an unused property. If approached, they may be tempted to sell the home to relieve themselves of the additional financial burden. Lists of out-of-state owners and their Houston properties can be purchased from online companies.


Properties in Probate

A property goes into probate when the owner passes away and does not leave the residence to a recipient in their will. In this situation, the state takes over, and the property is passed to probate court in which it is usually sold at a lower price. These properties can be found in the county legal paper.

While properties in probate do present financial opportunities for Houston real estate investors, there are risks associated with the purchasing process. Potential buyers must put down a 10% deposit – which may be non-refundable – when making an offer on the property. Then, both the estate representative and the probate court must agree to the terms; however, even when the sale date is confirmed, the public is given additional opportunities to outbid the offer. The process may turn into a waiting game.


REO or Bank-Owned Properties

REO (real estate owned) properties were repossessed by lenders after the property owner could not make payments on their loan. Likewise, bank-owned properties were repossessed by the bank after the homeowner could not make their mortgage payments; they are foreclosed properties. Both the lenders and banks are eager to part with the vacant homes as it costs them money to keep non-performing assets. As a result, residences are offered at cheaper prices to entice buyers.

To find these distressed properties, they are listed on the MLS (Multiple Listing Service), or paperwork may be displayed on a door or window providing the contact information of the asset manager or agent.


Government-Owned Properties

When a homeowner is not able to meet mortgage obligations issued by the FHA (Federal Housing Administration), the property goes into foreclosure and is repossessed by government-sponsored entities. This includes Freddie Mac, Fannie Mae, and HUD (US Department of Housing and Urban Development). Just like with banks or lenders, these entities are eager to sell the distressed properties since keeping them is a costly burden.

Government-owned properties in Houston can be found on the HUD website, which also provides links to Freddie Mac and Fannie Mae. Each of these entities has its own rules and regulations to follow when purchasing one of the repossessed homes.


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