How to Find Distressed Properties

Written by Steven PorrelloSeptember 14th, 202210 minute read

Distressed properties represent a rare opportunity to get good deals in an increasingly competitive, pricy real estate market. Whether it’s a homeowner at risk of foreclosure or a bank selling a repossessed home, owners of distressed properties are highly motivated to sell. This means you’ll have a better chance of getting a low price, favorable terms, or both.

But finding distressed properties isn’t necessarily easy. And, depending on how you search for distressed properties, you may face stiff competition from other investors or home buyers. Getting the good property deals requires employing multiple sourcing strategies—plus patience and persistence. This guide lays out seven effective ways to find distressed properties for sale, along with expert tips to help you get an edge on other would-be buyers in your area.

In a hurry? Quick summary | FAQ about distressed properties | Find an agent who can help

The 7 best ways to find distressed properties for sale

1. Try driving for dollars.

2. Find distressed properties online.

3. Use direct marketing.

4. Do internet marketing.

5. Check county tax records and court filings.

6. Go to property auctions.

7. Start networking like crazy.

1. Try driving for dollars

When you drive for dollars, you literally drive through neighborhoods looking for homes that appear to be distressed. When you find one, you contact the homeowners to see if you can take it off their hands. There are two ways you can approach driving for dollars:

  • 100% DIY: You track your progress on Google maps and manually log property info to research later. It’s a bit of a slog, but it’s totally doable and free.
  • Use a driving for dollars app: Platforms like DealMachine and PropStream are relatively cheap and track this stuff for you. They also pull property info, owner contact details, and integrate with internal direct mail services.

Before you start driving for dollars, you’ll need to identify which neighborhoods you want to target. Pick areas with real estate potential, such as emerging neighborhoods or boroughs near red-hot housing markets.

Next, drive. What you’re looking for is simple: houses or properties that are abandoned, falling apart, or showing signs of neglect.

Common signs of a distressed property

  • Vacant houses with boarded up doors and windows
  • Chain-link fences surrounding the area with trash on the sidewalk or driveway
  • Overgrown or neglected yard
  • Significant damage to the exterior, such as broken windows, faded or peeling exterior paint, or a damaged roof
  • Multiple unclaimed notices on windows, doors, walls, or mailboxes
  • Uncollected mail or newspapers

Once you have a list of potentially distressed properties, you’ll want to find out who the owners are, get their contact info (phone number, primary address, email), and ask if they’re willing to sell.

You can usually find contact information through your county assessor's website. However, if the owner doesn’t live in the distressed property (an “absentee owner”), you may need to do a bit more digging. We recommend using a prospecting app like DealMachine, which provides instant access to property info and owner contact information.

» MORE: Try DealMachine for free, get 15 marketing credits

2. Find distressed properties online

Finding distressed properties online is easy—there are plenty of free sites you can use. But because it’s so accessible, the distressed properties on these sites are highly visible. Expect more competition for properties from other investors and even retail buyers.

How to find distressed properties on the MLS

The multiple listing service (MLS) is a massive online database of homes that includes foreclosures, short sales, and homes listed for 90 days or more—all signs of distressed property. To find these homes, just search by listing code (such as “short sales”), and you’ll get a comprehensive list of homes in a desired area. You can also set alerts that notify you when homes under these codes are newly listed.

To access the MLS, you’ll need to hire a licensed real estate agent first. For the time it saves you—not to mention the opportunities it can present—this could be a worthwhile investment, especially if the agent is skilled in foreclosures and short sales.

💰 Get a great agent, save money.

Match with top local realtors, find great investment deals, get up to 0.5% cash back on your purchase.

How to find distressed properties on Zillow

You can find distressed property on Zillow by typing in the zip code or city name for the area you want to buy in, then selecting “Filters” and “Pre-Market.” This will pull up a list of pre-foreclosure and foreclosures listed on Zillow. You can also go to the Zillow Foreclosure Center and search for pre-foreclosures, foreclosures, and bank-owned properties by zip code.

Keep in mind that “pre-foreclosure” means the bank or lender has sent a default notice to the homeowners but the homes aren’t technically for sale. The owners could be trying to pay off their debts. Or they could be hoping for a cash offer from a buyer, which would prevent a foreclosure.

But not every distressed property is in the process of foreclosure. You might also want to search Zillow’s main site and look for keywords that signal a property may be distressed. Look for the following words or phrases in the title or listing description:

  • Motivated seller
  • Property sold “as is”
  • Needs work
  • Cash only
  • Fixer-upper
  • Lots of potential
  • Handyman special
  • Requires work
  • Bring your imagination
  • Needs some TLC

Other websites for distressed properties

Several websites are devoted solely to listing foreclosures and short sales. Not every site is updated regularly—especially auction pages. Start with the most reputable websites for distressed properties:

  • HUD Home Store is a listing site that provides a comprehensive list of homes that have been acquired by the government. You can browse the homes, but you’ll need an HUD registered real estate agent to submit an offer.
  • HomePath.com gives you the chance to pursue thousands of foreclosures that are owned by Fannie Mae.
  • HomeSteps.com is an inventory of Freddie Mac foreclosures that are available to investors and homebuyers.
  • Equator.com has thousands of foreclosures, short sales, and open-market listings.
  • Foreclosure.com has a massive database of foreclosures, though you’ll have to pay $39.99 per month to access them. That’s not necessarily a bad thing—the paywall could limit competition.

» MORE: The Most Vacant Cities in America

3. Use direct marketing

Direct marketing is when you offer to buy distressed homes through cold calls or direct mail. With direct marketing, your goal is to compile a list of hundreds—perhaps thousands—of distressed properties. The longer your list, the more likely it is that you’ll get a response.

Combine direct marketing with some of the other strategies listed here, such as driving for dollars, combing through tax and mortgage delinquencies, or even asking a real estate agent to pull expired listings off the MLS.

You can integrate these strategies manually, but it’s a lot easier to manage everything through an industry-specific app. We like DealMachine, which plugs driving for dollars and other prospecting tactics directly into your mailer campaigns. Generally, we recommend sticking with software made for real estate investors vs. general (and pricier) direct mail services, like Scout and Postalytics.

» PROMO: Try DealMachine free for 7 days, get 15 marketing credits!

Once you have a list, then comes the hard part: sending a carefully crafted message that convinces the homeowner you’re the right person to buy their home. Here are a few key phrases that might help you:

  • Cash offer
  • Cash buyer
  • Close in 24 hours
  • No inspections, renovations, or appraisals required
  • Seller can choose the day to close

Remember to empathize with the owner. They’re likely under a lot of stress, and you don’t want to come off as predatory or insensitive. You’re helping them get out from under a bad situation —and in return, you’re likely getting a favorable price and terms. There’s no need to take advantage of people here: aim for the win-win (and try to articulate that intention in your offer).

4. Capitalize on internet marketing

Instead of scouting out distressed homeowners, you could build an internet marketing campaign that brings them to you.

To start, you’ll need to build a website that answers who you are, what you do, and how you can help distressed homeowners. It doesn’t have to be fancy, but it does need to give them several ways to contact you. Squarespace is a user-friendly website platform that even offers free templates for real estate investors.

You’ll also want to build multiple channels that drive traffic to your website. Social media might be one channel, but you’ll likely find more success with paid advertising through Facebook or Google. These ads can target specific groups in certain areas.

Building and maintaining a real estate blog—especially one with content focused on certain areas—can be a cost-efficient way to attract leads. You can also build out landing pages that geotarget housing markets you’re trying to invest in.

If all of this sounds like too much, consider hiring an agency to build and manage it for you.

5. Check county tax records and court filings

Tax delinquencies are public records, and you can find them on a country assessor website. Sometimes you can just type “[County name] tax delinquencies” into a search engine and pull up a list of properties that haven’t paid taxes. You can also enlist the services of a third-party company to peruse county records for you.

Much like tax delinquencies, you can find delinquent mortgage payments in county court records. The best place to start is the county recorder's office, either online (if they have an updated website) or in person. Look for notices of foreclosure, such as “Lis pendens,” “Notice of Sale,” and “Notice of Default.”

6. Go to property auctions

Property auctions sell homes that have been repossessed by banks and lenders, or have already gone through probate. You’ll often see these auctions listed on county websites, in newspapers, or even as direct advertising from banks and lending institutions. They can be in person or online, and bids can be open or blind.

The best thing a first-time auctioneer can do is to attend a local auction and observe. Many auctions have their own rules, move fast, and require quick thinking. It’s wise to understand how the process plays out before bidding or buying. You can also determine how much cash you need to bring to the auction. Many auctions require you to have a certified check for a minimum amount to be considered a legitimate buyer.

As far as how to bid at an auction, know that auctions typically fall into one of three styles:

  • Absolute auctions have no minimums (they could start at $100,000 or $1), and the highest bidder gets the home.
  • Minimum bid auctions start at a minimum bid, which is often the amount that’s owed to the bank or lender plus taxes.
  • Reserve auctions work like absolute auctions in that the highest bidder gets the home. But there’s a twist: in reserve auctions, the seller can accept or reject the highest bid.

Buying distressed properties at auctions can be risky because you don’t know what you’re buying. You’ll have to buy the home “as is,” with little or no time to conduct inspections or even visit the property beforehand. Not only that, but you’ll also have to buy the house with cash and put down a hefty earnest deposit. You’ll also be surrounded by other real estate investors, many of them seasoned auctioneers.

That said, you can find some good deals at auctions, so don’t rule them out completely. Treat them as another strategy—rather than your principal one—and attend them with caution.

7. Rely on networking

Let people know what you do, and you might be pleasantly surprised when they find the properties for you. As you’re building your network, connect with professionals whose fields overlap with distressed property. This can include divorce or probate lawyers, asset managers of REO property, and real estate agents. These people can tell you when they spot a foreclosure or short sale you might be interested in.

» Need an agent? Try Clever’s free agent matching service, get built-in savings

Summary: How to find distressed properties

  • Finding distressed properties can be a good opportunity to get an affordable price and/or favorable terms, whether you’re an investor or regular home buyer.
  • Owners of distressed properties are highly motivated to sell, which gives you more leverage and opportunity to get a sweet deal.
  • But many people know distressed properties bring these benefits, so expect some stiff competition from other investors or retail home buyers.
  • Increase your odds of getting great deals (particularly if you’re an investor buying multiple properties) by searching through multiple channels and being persistent.
  • Try driving for dollars, direct marketing, searching online, scouring court records and local papers for upcoming property auctions, and more.
  • Use affordable real estate investor prospecting software like DealMachine to help streamline your sourcing, marketing, and offer process.
  • Team up with an experienced real estate agent who can help you source more deals via networking and the MLS, and then submit offers and negotiate the best price and terms.

» NEXT STEP: Find a local agent, start deal hunting (and save money)!

FAQ about how to find distressed properties

A distressed property is a home that can no longer be managed properly by its owner. Most distressed properties fall into one of three categories: financial distress, personal distress, or poor property condition.

  • Financial distress: The owner can’t pay property taxes or make mortgage payments. The property is in foreclosure or already owned by the bank.
  • Personal distress: Properties that are sold or in disrepair due to personal matters such as inheriting a house or a divorce settlement.
  • Poor property condition: The owners don’t have the money, time, or motivation to conduct needed repairs.

The best apps to find distressed properties are DealMachine, PropStream, Auction.com, Homesnap, Xome, and Mashvisor.

Chicago had the most distressed properties in the first quarter of 2022, followed closely by New York, Los Angeles, Houston, and Philadelphia. Each of these cities ranked for the highest number of foreclosures in the US, according to the 2022 Foreclosure Market Report by ATTOM.

  • Chicago (3,101)
  • New York (2,580)
  • Los Angeles (1,554)
  • Houston (1,431)
  • Philadelphia (1,375)

Repossessed properties are not always cheaper, although they often sell below market prices. Many repossessed properties need significant and costly repairs, which will narrow your profit margins. While you can find repossessed properties in good condition, you’ll still need to spend money on renovations to turn a significant profit.