Distressed Properties: The 10 Types & Which To Target

Written by

Alex Martinez, Founder & CEO, Real Estate Skills. Has wholesaled and flipped houses for over 14 years, been part of 1,000+ real estate transactions, and personally acquired 55+ residential investment properties. Has trained 6,000+ investors nationwide.

RZ

Reviewed by

Ryan Zomorodi, Co-Founder & COO, Real Estate Skills. Reviewed the property types, foreclosure timeline, financing options, and market data in this guide before publication.

✓ Updated October 2026 ✓ Fact-Checked 📄 Free Deal Calculator Inside Watch on YouTube

Publication history: Originally published February 9, 2021. Updated October 2026 with a new definition of distressed property, a 10-type comparison table, a verified foreclosure timeline, financing options, 2026 foreclosure data, and first-hand notes from our team. Reviewed by Ryan Zomorodi, Co-Founder & COO of Real Estate Skills.

Let me tell you what most people get wrong about distressed properties. They think "distressed" means "cheap." It doesn't. It means someone, or something, is under pressure. Sometimes that pressure turns into the best deal you'll ever do. Sometimes it turns into a money pit with a great listing photo.

The difference comes down to which kind of distress you're looking at and who's sitting across the table from you. A house can be weeks from a foreclosure auction and look perfect from the street. The house next door can have a tarp on the roof and an owner who has never missed a payment. Those are two completely different deals.

I've wholesaled and flipped houses for over 14 years and been part of more than 1,000 real estate transactions. I've closed deals on distressed houses, and I've also burned months chasing distressed leads that never turned into a single offer. So here's what I'd tell you if we were on a coaching call: what makes a property distressed, the 10 types you'll run into, who you're actually negotiating with on each one, how to pay for them, and which ones I'd go after first if I were starting over. When you find one worth a closer look, run it through our free deal calculator before you make an offer.

What Is a Distressed Property?

Here's the simplest way I can put it: a property is distressed when something is forcing the issue. The owner can't keep paying for it, can't keep it up, or can't keep it at all.

Most of the time, that something is money. The owner has fallen behind on the mortgage (the loan they used to buy the home) or on property taxes. Or a lender has started foreclosure, which is the legal process a lender uses to take a home and sell it to recover what it's owed. Or the lender already owns the house because nobody bought it at the foreclosure auction. That bank-owned stage has its own name, REO, short for "real estate owned."

Less often, the pressure comes from the house itself: a failing roof, a cracked foundation, fire or water damage, or a renovation somebody abandoned halfway through. That kind of distress can exist even when the owner's finances are fine. That's exactly why I split the two apart in the next section.

Distressed isn't the same as foreclosure. Every foreclosure is a distressed property, but most distressed properties never get anywhere near a foreclosure auction. Think of an inherited house the heirs can't afford to keep up, a home with years of unpaid property taxes, or a property racking up city code-violation fines. All distressed. No bank auction in sight.

Distressed isn't the same as a fixer-upper, either. Here's how I think about it: a fixer-upper needs work, and a distressed property needs a solution. The owner of a dated house who pays the mortgage on time isn't under any pressure to sell to you, and the asking price will usually show it. When a fixer-upper also belongs to an owner in trouble, that's when the numbers start to move.

Why these properties can sell below market value comes down to one thing: pressure shrinks the field of buyers.

• A seller with an auction date on the calendar can't wait months for the perfect buyer.
• A house too damaged for a normal mortgage can only go to someone paying cash, using hard money (short-term loans from private lenders based mostly on the property's value) or using a renovation loan. That's a much smaller group of bidders.
• A bank that ends up owning a house never wanted it in the first place. Banks are in the business of lending money, not managing houses.

Now the part nobody likes to hear: distressed doesn't mean discounted. Banks selling REO homes still push to get close to market value. A clean, move-in-ready foreclosure listed on the MLS (the database real estate agents use to list homes for sale) can draw just as many offers as any other house. The discount comes from the problem you're willing to solve, not from the label on the listing.

How common are distressed properties right now? More common than a year ago, but rising from historically low levels. Here's what I'm watching:

• 227,548 U.S. properties had a foreclosure filing in the first half of 2026, counting default notices, scheduled auctions and bank repossessions. That's up 21% from the same period in 2025.
• That's 0.16% of all housing units, about one in every 632. Florida, South Carolina and Indiana had the highest foreclosure rates.
• Lenders repossessed 27,983 properties in the first half of 2026. That's up 33% from a year earlier, but still 26% below the first half of 2020.
• The process is getting faster. Homes foreclosed in Q2 2026 had spent an average of 563 days in foreclosure, the shortest since 2013.

What that means for you: more pre-foreclosure leads, and less time to reach the owner before the auction.

Figures as of ATTOM's mid-year 2026 foreclosure report. Check ATTOM's latest release for current numbers.

Financial Distress vs. Physical Distress

When I teach this, I break it into two words: condition and situation.

A house in a distressed condition has problems you can see. Holes in the roof. Overgrown bushes swallowing the front windows. A kitchen that hasn't been touched since the 1970s. Old, faulty electrical wiring. A foundation so tilted that a marble rolls from one end of the room to the other. Something has to be fixed before anyone can comfortably live there.

An owner in a distressed situation has a problem you usually can't see. They're behind on the mortgage. They're going through a divorce. They lost a job and have to move across the country in a few weeks. They've been sued and need cash to pay a judgment. The house might look fine. The owner isn't.

▶ Watch me break down condition vs. situation

The two don't always show up together. This trips up a lot of new investors, so here are two real examples from our team.

• Physical distress, no financial distress: My business partner Ryan has a habit of looking up houses with tarps on the roof to see whether the owners are behind on their mortgages. More often than you'd think, they're not. They're paying on time and just not spending a dime on upkeep. Henish Pulickal, a San Diego broker and investor Ryan interviewed, sees the same thing with rental properties: the landlord pays the loan every month and never fixes anything.
• Financial distress, no physical distress: When Ryan walked through HUD's foreclosure listings on video, one of the homes was a four-bedroom built in 2022. It was clean, well kept and nearly new. It was still a foreclosure, because the owner had stopped making payments. That house was distressed on paper and in great shape in person.

Here's how the two compare:

For the owner's side of the story, read our breakdown of what puts owners in distress.

Why this matters when you're actually buying: the owner's situation decides how motivated the seller is. The house's condition decides who can buy it. Most lenders won't write a regular mortgage on a home that isn't livable, so a house in rough shape usually goes to a buyer paying cash or using hard money or a renovation loan. That's a far smaller group of competitors. (I cover financing in detail further down.)

One more thing worth knowing: you'll almost never see the owner's situation in a listing. No agent is going to write "seller is going through a divorce" in a public description. You find that out by picking up the phone and asking the agent one simple question: why is the owner selling?

When you get both at once, pay attention. Say an owner has to relocate for a new job in 17 days, and the house needs a new roof and a full interior update. A regular buyer's loan can't close that fast, and many lenders won't touch a house in that condition anyway. A cash buyer can solve both problems at the same time. In my experience, that combination of a distressed situation and a distressed condition is where the best deals come from. That isn't a guarantee. The numbers still have to work.

The 10 Types of Distressed Properties, Compared

When I'm coaching a new investor, this is the first thing I want them to understand: "distressed" isn't one market. It's ten different markets with ten different sets of rules. Who signs the contract changes. Where the lead comes from changes. How you pay for it changes. And how likely a beginner is to actually close changes most of all.

Here's how they stack up. The last column is my honest take on each one for someone doing their first or second deal.

What the HUD and agency row means in practice:

• HUD gives buyers who'll live in the home an exclusive window first. On insured properties, investor bids aren't considered until after day 31, and uninsured properties get a 5-day exclusive period.
• Fannie Mae's HomePath has a similar First Look period, usually the first 20 days a home is listed (30 in Nevada).
• If you're an investor, those homes reach you only after owner-occupants have passed on them.

Rules as of 2026. Confirm on HUDHomeStore.gov and HomePath.com before you bid.

On zombie properties: ATTOM defines a zombie as a home abandoned by its owner before the foreclosure is finished. They're rarer than people think: about 3.4% of pre-foreclosure homes in ATTOM's second-quarter 2026 report.

On tax-delinquent properties: what happens next depends on your state. Some counties sell a tax lien, which is the right to collect the back taxes plus interest. Others auction the property itself at a tax deed sale. Many give the owner a redemption period to catch up, and the length varies widely from state to state. Check your county's rules before you build a strategy around them.

What pushes owners into distress (the triggers). These aren't types of property, they're the reasons a property becomes distressed:

• job loss or reduced income
• medical bills
• divorce
• bankruptcy
• the death of the owner
• a court judgment the owner has to pay
• a loan payment that adjusted upward
• a reverse mortgage balance that grew past the home's value
• a landlord worn down by problem tenants

Henish Pulickal, a San Diego broker Ryan interviewed, is working with an owner who has to sell a property to pay a court judgment after a car accident. That's distress with no missed mortgage payment at all.

Why "absentee owner" isn't on this list: an absentee owner just means the owner doesn't live at the property. Most absentee owners are ordinary landlords who are doing fine. As Ryan and Henish put it, absentee ownership only becomes a real lead when it stacks with something else: a recorded default, tax liens, a judgment, or decades of ownership with no updates. Treat it as a signal, not a type.

How To Find Distressed Sellers & Close PROFITABLE Deals (The Right Way)!

My business partner Ryan sits down with Henish Pulickal, a San Diego broker who once ran a bank's foreclosed-homes department, to walk through pre-foreclosures, short sales, bank-owned homes, probate and code-violation properties from both sides of the table.

 

Jump to: Pre-foreclosures · Short sales · Foreclosures and REO · Probate

Pre-foreclosure

Missing a payment doesn't make a house a pre-foreclosure. Nobody outside the bank knows about it. It only becomes public once the lender records a default notice or files a foreclosure case, and federal rules generally keep lenders from doing that until the loan is more than 120 days delinquent. (I walk through the full timeline below.)

Here's the advantage, straight from Henish Pulickal. In a pre-foreclosure you're still talking to the homeowner, so you can work out terms that help both sides. Once it becomes bank-owned, you're dealing with a listing agent who reports to a bank asset manager, and that person wants multiple offers and the highest price.

Here's the part beginners don't expect. Henish's experience is that most owners in pre-foreclosure don't want to sell. That's especially true of people who've owned the home for decades or inherited it. Before selling is even on the table, someone has to walk them through their options. Those include a loan modification (new loan terms from the lender) and a reinstatement (paying the missed amount to bring the loan current). That takes time, trust and a hard deadline. I break down how to approach distressed sellers in a separate guide.

Henish holds himself to a simple standard, and I'd hold you to it too: structure every deal so that if the seller's family hired a lawyer to review it, the lawyer would say it was fair.

Not legal advice: several states have special rules for buying from owners in foreclosure, including required contract language and cancellation rights. Talk to a local real estate attorney before you make an offer.

Short sale

Whether the owner still owes the remaining balance afterward depends on state law and the type of loan, which is another reason they need their own attorney.

My take: short sales are real deals, but the bank sets the price and the timeline. That's not where I'd send someone for a first deal.

Foreclosure auction

Ryan has walked through auction listings on video, and his warnings are the same ones I'd give you:

• You come to the table with cash.
• You usually can't inspect.
• You may not get the title protection you'd get in a normal sale, so liens can follow the property.

If nobody meets the lender's minimum bid, the house goes back to the bank and becomes an REO.

Auction dates also get postponed or canceled all the time, because owners catch up or negotiate with their lender. Confirm the sale is still on before you spend money on research.

My take: auctions are for investors with cash ready, a title researcher on call and a hard maximum bid. Learn the game on easier deals first.

REO / bank-owned

Henish makes a point that clears up a lot of confusion: a house isn't really a "foreclosure" until it reverts to the bank. If an investor buys it at auction, it's simply that investor's property.

Once the bank owns it, you're dealing with a listing agent, an asset manager and often multiple offers. The bank has never lived in the house, so it can't tell you about the leaky sink or the old roof. Bank sellers are often exempt from some of the disclosures a regular seller has to provide.

Two realities to plan for:

• Livable REOs can be financed: so you're competing with owner-occupants who'll pay a premium for a move-in-ready home.
• REO doesn't mean bargain: the bank is trying to recover as much of its loss as it can.

Inventory is growing again. Lenders repossessed 27,983 homes in the first half of 2026, up 33% from a year earlier.

HUD and agency foreclosures (HUD homes, Fannie Mae HomePath)

Ryan walked through both sites on video, and what surprised him most was condition. Plenty of these homes look turnkey. They're distressed because the last owner stopped paying, not because the house is falling apart.

HUD homes

• Offers go through a HUD-registered broker.
• Many listings include a property condition report covering the major systems.
• Some listings come with owner-occupant incentives. On one listing Ryan reviewed, the addendum offered a $100 down payment for FHA buyers who would live in the home. These incentives vary by listing.
• Good Neighbor Next Door: full-time law enforcement officers, pre-K through 12th-grade teachers, firefighters and EMTs can buy eligible HUD homes in designated revitalization areas at 50% off the list price. They have to live there for three years and sign a second mortgage for the discount amount.

Fannie Mae HomePath

• Its First Look period is usually the first 20 days a home is listed (30 days in Nevada).
• First-time buyers who complete an online homebuyer course and move in within 60 days may qualify for up to 3% in closing cost help through HomePath Ready Buyer.

Ryan's caution: many agency homes are priced close to market, sold as-is, and there's little room to negotiate once your offer is accepted.

Program rules as of 2026. Confirm current terms on HUDHomeStore.gov and HomePath.com.

Probate and inherited property

This is the type I started with, and it's why I'm honest about it. When I was brand new, I drove to downtown San Diego to pull probate records and mailed every name I found. I got conversations, but no offers. My first deal that actually closed came from a listed property.

Henish's view backs that up. Probate homes are often less distressed than people expect: dated, but maintained. The process brings in an attorney, sometimes a probate referee (a court-appointed appraiser) and appraisals. In California, for example, a private probate sale that needs court confirmation generally has to come in at 90% or more of an appraisal done within the past year.

Then come the heirs. Henish is listing an estate right now with 15 beneficiaries, each with an opinion on price. His verdict is that probate is often not a great fit for investors. He's done some and broken even on a couple.

My take: probate can work once you know your market and you're patient. It isn't a first-deal strategy.

Probate rules vary by state. Have a local probate attorney confirm how sales work where you invest.

Tax-delinquent property

How it plays out depends on where the property sits:

• Tax lien states: the county sells a tax lien certificate, which is the right to collect the back taxes plus interest.
• Tax deed states: the county auctions the property itself.
• Some states use a hybrid of the two.
• Most give the owner a redemption period to pay what's owed, and that period varies a lot by state.
• A property tax lien generally takes priority over a mortgage, which is why tax sales get lenders' attention fast.

My take: the opportunity is talking with the owner before the county sells anything. Buying at the tax sale itself is its own specialized game with its own rules in every county. Learn your county's process before you build a strategy around it.

Vacant and abandoned property

The work here is finding the owner. That usually means skip tracing (tracking down an owner's current phone number or address through public records and data services) and a lot of persistence.

A "zombie" property is the extreme version: the owner moved out during the foreclosure, and the process stalled. They're rarer than the headlines suggest, about 3.4% of pre-foreclosures as of mid-2026.

Code violations and city liens

Henish says these owners are often elderly and living alone, and family members tend to get involved once the city escalates. To find these properties, check your city's code-enforcement records. His best tip: ask your title officer to search the zip codes you're targeting for recorded city liens. That surfaces the serious cases. Every lien has to be paid at closing, so build them into your numbers.

Hoarder houses often land here too. Henish worked one where junk was stacked seven to eight feet high all the way to the sidewalk. The city had already cleaned it out once and placed a lien of roughly $15,000 to $20,000 for the cleanup, and the owner was also behind on the mortgage. Physical and financial distress stacked on one property, exactly the combination I described earlier.

Physically distressed and fixer-upper

This is where I'd start, and it's where my own first closed deal came from. The seller has already decided to sell, the house is listed, and the agent will often tell you it needs work ("TLC," "handyman special," "cash only"). Your edge is speed and knowing your numbers. Good ones go under contract fast.

Ryan's warning about half-finished renovations belongs here too. A listing that says "most of the heavy lifting is done" can be a liability, because you inherit someone else's work quality. Ryan says a contractor friend of his sometimes turns down half-done projects for exactly that reason. Fire-damaged homes fit this row as well. Get a structural assessment before you trust any rehab number.

How Distressed Properties Reach the Market

Ryan put it well in his interview with Henish: new investors hear pre-foreclosure, foreclosure, auction and REO and assume it's all the same thing. It's not. These are different stages, with different people in charge at each one. Here's the order.

How a house moves from missed payment to bank-owned:

1. Missed payments (private): The owner falls behind. At this stage only the owner and the lender know, so there's no public lead yet.
2. More than 120 days behind: Under federal mortgage servicing rules, a servicer generally can't make the first notice or filing to start foreclosure until the loan is more than 120 days delinquent.
3. The first public record, when pre-foreclosure begins: In a non-judicial state, that first notice is the earliest document recorded or published to start the process, often a notice of default. In a judicial state, the lender files a lawsuit, and a lis pendens (a recorded notice that the property is tied up in a lawsuit) usually appears in the records. This is when a pre-foreclosure lead appears, and you're still dealing with the owner.
4. An auction date is set: A notice of sale (or the court's order in judicial states) schedules the auction. The clock is now visible to everyone, including other investors.
5. The auction: A trustee or sheriff sells the home to the highest qualified bidder, usually for cash. Sales get postponed often, so confirm the date before you plan around it.
6. One of two outcomes: If a buyer meets the lender's minimum, the home becomes that buyer's property. If nobody does, it reverts to the lender.
7. REO: The bank now owns it, hires a listing agent, and usually puts it on the MLS.

A short sale can happen anywhere from step 3 to step 5, as long as the lender approves selling for less than it's owed.

Nationally, it takes much longer than that. Homes foreclosed in Q2 2026 had spent an average of 563 days in the process. Even so, that was the shortest average since 2013. Judicial states tend to run longer, because a court has to sign off.

Where each deal type fits on this timeline:

• Steps 3 to 4: pre-foreclosure. You negotiate with the owner.
• Steps 3 to 5: short sale. You need the owner and the lender.
• Step 5: auction. You need cash, and there's usually no inspection.
• Step 7: REO. You negotiate with the bank's agent.

The earlier you are on the timeline, the more room you have to work out terms with a real person. The later you are, the more it becomes a bidding contest with an institution.

This is a general overview, not legal advice. Foreclosure procedures and deadlines vary by state and change over time. Confirm the rules in your state with a licensed real estate attorney.

How to Tell If a Property Is Distressed

Here's the rule I teach: a house can tell you about its condition, but it almost never tells you about the owner's situation. You have to go looking for that part.

One sign is a clue, not proof. Henish and Ryan made this point about absentee owners, and it applies to every signal on this list. The more of them that stack on one property, the more likely there's real motivation behind it. A vacant house with a recorded default notice and two years of unpaid taxes is a completely different lead from a house that just needs a paint job.

For the owner's situation, pick up the phone. No listing will ever say "seller is going through a divorce." On a listed property, I call the agent and ask:

• Is it still available?
• Do the photos match the current condition?
• Why is the owner selling?

Agents won't always answer that last question, but when they do, it tells you whether you're looking at a fixer-upper or a seller who needs a solution. Often, it's both.

Know What to Ask Before You Call the Listing Agent

A listing will show you a house's condition, but it won't tell you the seller's situation. You find that out on the phone. Download our free Discovery Call Script for the questions we ask listing agents to confirm a distressed property is still available, check whether the photos match the condition, and learn why the owner is selling.

Download the Free Discovery Call Script

How Do You Find Distressed Properties?

Most guides hand you a list of twenty "strategies." I'd rather you understand where each type of distress actually leaves a trail, because once you know that, the methods make sense on their own.

Distressed properties that are already listed for sale are the easiest to find and the fastest to act on. The seller has already decided to sell.

• Fixer-uppers and as-is homes: listing sites and the MLS (with an agent's help or your own access). Filter for fixer-uppers and search listing descriptions for words like "cash," "investor," "TLC" and "as-is."
• Bank-owned (REO) homes: the MLS, where they're flagged as REO or bank-owned. Zillow, Realtor.com and Redfin all have a foreclosure filter under listing type.
• HUD and Fannie Mae foreclosures: HUDHomeStore.gov and HomePath.com.
• Short sales: MLS listings marked as short sales.

For distressed properties that aren't listed, the lead comes from public records, and then you have to reach the owner.

• Pre-foreclosures: default notices and foreclosure filings in county or court records.
• Probate: probate court filings.
• Tax-delinquent: the county's delinquency lists.
• Code violations: city enforcement records, or recorded liens your title officer can search.
• Vacant and abandoned: what you see in person (see the signs above), plus vacancy data. Then you skip trace the owner.

Paid data services pull many of these records into one place. Henish has used one for over a decade to build pre-foreclosure lists by zip code and equity. They cost money, though, and the free versions of these records exist at your county.

Three free ways to find listed distressed properties, from Ryan's walkthrough. On video, my business partner Ryan ran a live Redfin search in Chattanooga, Tennessee:

1. Sort by price per square foot: The cheapest listing in the market came in at $56 per square foot, and most of the listings near the top of that sort needed work.
2. Turn on Redfin's fixer-upper filter: It cut roughly 1,300 listings down to 37. It won't catch everything, but it's a fast first pass in any market.
3. Run keyword searches: "Cash" returned 23 listings. "Investment," filtered to houses, multifamily, townhouses and condos, returned 99. Each keyword surfaces a different set of leads.

Counts at the time of recording; yours will differ.

How To Find Distressed Properties For FREE!

My business partner Ryan runs a live search on Redfin and shows the three free filters he uses to find distressed listings in any market, then runs the numbers on one as a flip, a wholesale deal and a rental.

 

Whatever source you use, speed wins. A distressed listing that looks good to you looks good to every other investor. When we find one, we call the agent the same day, before spending hours analyzing it, to confirm it's still available and that the photos match reality. Then we run the numbers.

Where to go deeper:

• For the full list of off-market methods (direct mail, networking, list services and more), see our guide on how to find off-market inventory.
• For working the MLS without a license, see our guide to finding them on the MLS.
• If you'd rather scout neighborhoods yourself, see our guide to driving for dollars.

Can You Get a Mortgage on a Distressed Property?

Here's how I explain this to students: the loan you can get depends on the house's condition, not the owner's situation. A pre-foreclosure in perfect shape can be financed like any other home. A gutted house with no working kitchen can't, no matter how motivated the seller is.

Why condition matters so much: FHA-insured loans require the home to meet HUD's minimum property requirements, which come down to whether the home is safe, sound and secure. The appraiser checks for that. Conventional lenders have their own condition standards too. When a house fails, the lender either requires repairs before closing (which a bank or distressed seller usually won't make) or declines the loan. That's exactly why so many distressed listings say "cash only," as Ryan pointed out on video. The agent already knows the house won't pass a regular appraisal.

HUD proposed revisions to these appraisal and property standards in September 2026. Check with your lender for the rules that currently apply.

What this means if you plan to live in the home: you have options most investors don't. HUD homes listed as "insured" meet FHA's property standards and are eligible for standard FHA financing, sometimes with only cosmetic repairs needed. Add HUD's and HomePath's owner-occupant priority windows, and a first-time buyer can compete for distressed homes without bidding against cash investors right away.

What this means if you're investing: plan on cash, hard money or private money for anything rough, and treat a renovation loan as the exception. FHA 203(k) won't work for you at all, because it's limited to owner-occupants. Run your numbers with the real cost of that money (points, interest and holding time), not the rate on a regular mortgage. Our student Savvy learned this firsthand. Her years of conventional financing didn't help on her first truly distressed property, and hard money was the only way to close it.

Lenders don't care how motivated the seller is. The bank financing your purchase is looking at the house, the appraisal and you. Get your financing lined up before you write offers on distressed homes, because these deals rarely wait for you to figure it out.

This is educational, not financial or lending advice. Loan programs, limits and eligibility change, and every lender has its own overlays. Confirm current terms with a licensed mortgage professional before you make an offer.

Which Type of Distressed Property Should You Start With?

Here's why that worked, and why I still recommend it. A distressed owner and a motivated seller aren't the same thing. Henish's experience is that most owners in pre-foreclosure want to keep their homes, and they have to be walked through every option before selling is even on the table. A listed fixer-upper skips all of that. The decision's made, there's an agent to talk to, the condition is in the photos, and you can make an offer today. You're competing on speed and numbers, which are both skills you can learn fast.

Same house, same repairs. The only thing that changed was the price you negotiated. That's what I mean when I say you make your money when you buy. Figure out your maximum allowable offer before you make one.

Results vary. Your numbers will depend on your market, your rehab costs and your financing.

Know Your Number Before You Make an Offer

Distressed doesn't mean discounted. The only way to know if a distressed property is a deal is to run the numbers before you make an offer. Download our free Deal Calculator, the same spreadsheet Ryan used in the Chattanooga example above, to plug in the purchase price, rehab estimate and holding costs, see your profit spread, and work out your maximum allowable offer.

Download the Free Deal Calculator

Who distressed properties are wrong for. I'd rather tell you now:

• If you need a move-in-ready home with no surprises: most distressed properties will fight you every step of the way.
• If you don't have a cash cushion for overruns: a $20,000 surprise behind a wall can turn a good deal into a bad year.
• If you can't move quickly: you'll keep losing the good ones to investors who can.
• If you're expecting easy money: listen to Henish. He owns a construction company and has flipped homes in San Diego for years, and he says most of his projects net around 10% of the project's size, while carrying the real risk of losing that much. Distressed deals pay because you're solving hard problems, not because they're easy.

Results vary. Nothing here guarantees any profit. Wholesaling rules differ by state, so check your state's requirements and talk to a local real estate attorney before assigning a contract.

Distressed Property FAQs

Final Thoughts on Distressed Properties

That's why I'm so firm about where beginners should start. You don't need to chase probate filings and default notices on day one. I did, and all it got me was conversations. Start where the seller has already decided to sell, get fast at running numbers, and earn your way into the harder types.

Here's what I'd do this week:

1. Pick one market: pull up the listed fixer-uppers and as-is homes in it, using the filters and keywords from the "how to find" section.
2. Choose the three most distressed listings: call each agent the same day. Ask whether it's still available, whether the photos match the condition, and why the owner is selling.
3. Run all three through the deal calculator: work out the price at which each one actually makes sense.
4. Make an offer at that price: even if it's well below asking. The list price is where the conversation starts, not where it has to end.
5. Line up your financing: before the next one, whether that's cash, hard money or a renovation loan, so you can move when the right deal shows up.

Most of your offers won't get accepted. That's normal. The investors who win in distressed real estate are the ones who keep making disciplined offers until one lands.

About The Author

Alex Martinez

Founder & CEO, Real Estate Skills

Alex Martinez is the Founder and CEO of Real Estate Skills. He has wholesaled and flipped houses for over 14 years, been part of 1,000+ real estate transactions, and personally acquired 55+ residential investment properties. He has trained 6,000+ investors nationwide.

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Real Estate Skills is not a law firm, and the information in this article is provided for educational purposes only. It does not constitute legal, tax, lending, or financial advice. Foreclosure, probate, tax sale, and wholesaling laws vary by state and change over time, and loan programs and their limits change regularly. Real estate investing carries risk, and past results do not guarantee future outcomes. Always consult a licensed real estate attorney, mortgage professional, and your own tax and financial advisors before buying a property or entering into any contract.