Distressed and foreclosed properties in Australia

A distressed or foreclosed property sale can result in a cheap purchase for a savvy buyer, but it requires diligent research and an understanding of the risks.

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Distressed property sales can be cheaper than the market average in Australia because buyers are selling in a hurry. This can be for many reasons, be it financial stress, death or a relationship breakdown. This is why distressed properties are often tempting prospects for bargain-hungry buyers. 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 publishes regular reports on distressed properties.
  • DG Institute also publishes regular reports a national list of distressed properties.

Compare investment loans to fund your property purchase

$
years
Name Product Interest Rate (p.a.) Comp. Rate (p.a.) Fees Monthly Payment

Nano Variable Home Loans P&IInvestment≥ 25% Deposit Refi Only

Nano Variable Home Loans
2.29%
2.29%
  • App: $0
  • Ongoing: $0 p.a.
$578
Investors can refinance this no-fee variable rate loan. You will need a 25% deposit. Fast online approval.

Athena Variable Home Loan P&IInvestment≥ 40% Deposit

Athena Variable Home  Loan
2.39%
2.39%
  • App: $0
  • Ongoing: $0 p.a.
$586
Investors with large 40% deposits or equity can get this low variable rate. A competitive option for investors looking to refinance.

UBank UHomeLoan Fixed P&IInvestment 1Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
2.14%
2.54%
  • App: $0
  • Ongoing: $0 p.a.
$567
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.

St.George Fixed Rate Advantage Package P&IInvestment 2Y Fixed≥ 20% Deposit

St.George Fixed Rate Advantage Package
2.24%
3.89%
  • App: $0
  • Ongoing: $395 p.a.
$574
$3,000 refinance cashback.
Investors can lock in a competitive rate for two years with this package loan. You will need at least a 20% deposit. Refinancers borrowing $250,000 or more can get a $3,000 cashback (Apply by 30 September 2021. Terms and conditions apply). Refinancers Only.

Westpac Fixed Option Home Loan Premier Advantage Package P&IInvestment 2Y Fixed≥ 5% Deposit

Westpac Fixed Option Home Loan Premier Advantage Package
2.29%
3.97%
  • App: $0
  • Ongoing: $395 p.a.
$578
$3,000 refinance cashback
A competitive fixed rate loan for investors that allows you to make up to $30,000 in extra repayments. Principal and interest loans only. $3,000 cashback for eligible refinancers. Apply by 30 September 2021. Terms and conditions apply.

Bank of Melbourne Advantage Package Fixed Home Loan P&IInvestment 2Y Fixed≥ 20% Deposit

Bank of Melbourne Advantage Package Fixed Home Loan
2.24%
3.91%
  • App: $0
  • Ongoing: $395 p.a.
$574
$3,000 refinance cashback.
Lock in a low rate for two years with this competitive investment package loan. Refinancers borrowing $250,000 or more can get a $3,000 cashback (Apply by 30 September 2021. Terms and conditions apply). Refinancers Only.

loans.com.au Smart Booster Discount Investor Variable Home Loan P&IInvestment≥ 20% Deposit

loans.com.au Smart Booster Discount Investor Variable Home Loan
1.99%
2.71%
  • App: $0
  • Ongoing: $0 p.a.
$555
If you have an owner occupier loan with loans.com.au you can also get this very low rate variable mortgage for your investment property. Principal and interest repayments. Add an offset account for an additional 0.10% on your interest rate. Get your loan processed fast and settle within 30 days.
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