Liz Hodgkinson

My inbox – don’t know about anybody else’s – is currently littered with ads to buy distressed properties, currently on offer all over the world: Bahamas, France, Italy, Greece,Spain, US, Bulgaria, UK.

The prices sound tempting enough. Many Florida properties are on sale for what seem like very small five-figure sums, such as $45,000. They are often described as rent-ready and in immaculate condition.

But am I tempted, and should you be? No! Why would you want a ‘distressed’ property and why is it distressed anyway?  The term does not refer to the condition of the property, but the fact that it has been repossessed or foreclosed by the bank. Very often, these sales are released back onto the market by the banks who are trying to offload them at any cost.

They may then be sold cheap to a finance or property company which in turn, is advertising them at suspiciously low rates. 

Although they may seem cheap to buy, these properties are not necessarily cheap to run.  In fact, the purchase costs are only the start. Many properties are foreclosed because the owners could not afford to pay the running costs on them. Distressed properties in holiday areas usually come with very high maintenance costs, such as garden  landscaping, caretaking, pool maintenance, fees to the management company and local taxes.

Very often, annual maintenance charges are very low on new developments and then they rise significantly after a year or so; the low charges are just to entice you in.

And even if you are able to rent them out, you will probably only recoup about half the rental; you will probably not even cover your costs on the properties.

Very often, distressed properties are only offered for sale when the banks have not been able to sell them, or when none of the bank staff want them for themselves. This has certainly happened with Spanish properties, and is very probably the case with properties in other countries as well.

If, however, you are interested in buying a distressed property, possibly as a holiday home, these are the figures you need to bear in mind: interest charges on any foreign mortgage; currency fluctuations; annual maintenance charges; local taxes; fees to letting agents, cleaning companies, gardeners, pool servicing and any other handling fees.

If considering the property as a rental investment, find out (a) how many weeks, realistically, the property will rent out during the year and (b) what rent you can hope to  achieve, especially if there is fierce competition from other holiday rental properties in the same area. 

As ever more people default on their holiday homes or even their main home, there will increasingly be more of these ads. A few years ago, everybody was rushing to buy property abroad and in some cases, their purchase turned out to be a good investment or, it enhanced the quality of their life.

But the last few years have seen many hastily-built holiday complexes all over the world and a lot of these are now standing empty.