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Distressed Property in Australia

A distressed property can look like a cheap purchase for a savvy investor, but it requires diligent research and an understanding of the risks.

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Distressed properties can be cheaper than the market average in Australia, which makes them tempting for bargain-hungry property investors. But there's often a reason why a property is distressed in the first place. If you don't do careful research your bargain buy could turn into a loss.

What is considered a distressed property?

A property can become distressed for many reasons, from financial misfortune to environmental damage to market decline or even relationship breakdown. Here are some common situations in which a property may become distressed:

  • Mortgagee-in-possession sales. If a borrower cannot repay their mortgage then the bank can step in and sell the property in order to recoup their losses. This is called a mortgagee-in-possession sale.
  • Property damage. Severe damage to a property by fire, flood or accident can drastically lower the value of a property, causing the owner to sell it in a hurry.
  • Falling value. A declining property market can see investors rushing to sell. This is especially common in "one industry" towns, such as mining towns in Western Australia, where prices rose and then fell dramatically as the mining boom slowed down.
  • Relationship breakdown. Divorce or relationship breakdown can often lead to the sudden sale of an investment or family home.
  • Deceased estates. The death of a property owner often results in a hurried sale by the estate's trustee.

What are the risks involved with buying a distressed property?

Sometimes a distressed property can result from the seller's circumstances alone and can present an opportunity for an organised buyer to snap up a bargain. But if the property is in poor condition or located in a struggling neighbourhood then the discounted price matters less than your ability to make a profit from the purchase.

This is why you need to look beyond the purchase price, examine as much data as you can and consult the professionals. You need to know if the property requires serious repairs, estimate how much they will cost and then factor that into your decision.

If the property is in serious disrepair, is very small in size or has some other factor dragging its value down then you may also struggle to get finance. Lenders may reject your application or require a much larger deposit.

How to buy a distressed property

Following these general tips will help you make a decision that's right for you:

  • Do your due diligence. Research the market so that you know you're paying a good price. Look at comparable, recent sales from various sources (not just what the agent provides).
  • Get expert help. Paying for an independent property valuation is a must. You should also have a building inspection conducted to assess the condition of the property in detail. Consider consulting a buyer's agent to help you negotiate a good price. A professional buyer's agent can also help you
  • Check if the property itself is distressed or if it's the area it's located in (for example, a post-boom mining town). A struggling property in an otherwise thriving area could represent better value than a nice house on a bad street in a struggling town.
  • Balance risk and reward. Try to weigh the savings that come from a (hopefully) discounted price with the potential profit. If the risks are too high and the reward seems too small then it might be better to buy an investment-grade property at a higher price.
  • Get your finance organised in advance. Distressed properties can be competitive, especially if they represent a good deal. Getting pre-approved by a lender will give you an advantage and give you some confidence that you can get finance. But your lender will ultimately make their decision based on the strength of the property as security as well as your ability to repay the loan. A mortgage broker can help you find a lender in more challenging circumstances.

Where can I find distressed properties for sale?

You can find distressed properties for sale on various listing sites and on individual real estate agents' websites.

Some places to look include:

  • Trovit
  • ForcedSale.com.au
  • SQM Research also publishes regular reports on distressed properties, but you have to pay for them.

Compare investment loans to fund your property purchase

Data indicated here is updated regularly
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Loan purpose
Offset account
Loan type
Repayment type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
UBank UHomeLoan Variable Rate - Discount Offer for Investor Variable P&I Rate
2.89%
2.89%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
Athena Liberate Home Loan - 70% to 80% LVR Investor, P&I
2.79%
2.74%
$0
$0 p.a.
80%
A competitive investor variable rate that falls as you build equity.
homeloans.com.au Low Rate Home Loan with Offset - LVR 60% to 80% (Investment, P&I)
2.54%
2.56%
$0
$0 p.a.
80%
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account. This loan is not available for construction.
Newcastle Permanent Building Society Fixed Rate Home Loan - 1 Year Fixed (Owner Occupier, P&I)
2.49%
4.12%
$595
$0 p.a.
90%
$2,000 refinance cashback
Investors can take advantage of a short term fixed rate with no ongoing fees. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
UBank UHomeLoan - 1 Year Fixed Rate (Investor, P&I)
2.29%
2.84%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
Athena Evaporate Home Loan - 60% to 70% LVR  Investor, P&I
2.74%
2.71%
$0
$0 p.a.
70%
Athena's refinance offer for investors and owner occupiers.
Pepper Money Essential Prime Full Doc Home Loan - LVR >75% up to 80%
3.09%
3.29%
$599
$10 monthly ($120 p.a.)
80%
This is a competitive, flexible variable rate suitable for borrowers with a good credit history. Borrow up to 80%.
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Logo for Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)
Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)

Up to $3,000 refinance cashback. A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.

Logo for St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)

Up to $4,000 refinance cashback. A competitive variable rate loan from St.George. Refinancers borrowing $250,000 or more can get $4,000 cashback (Other terms, conditions and exclusions apply).

Logo for Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I
Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I

A competitive variable rate mortgage for owner occupiers $0 application and $0 ongoing fees. This interest rate falls over time as you pay off the loan.

Logo for UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate
UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate

Take advantage of a low-fee mortgage with a special interest rate of just 2.49% p.a. and a 2.49% p.a. comparison rate.

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