Distressed properties refer to real estate assets that are in some state of disrepair, default or financial distress. These could include foreclosed homes, bank-owned properties, short sales and other types of real estate owned (REO) by a lender due to nonpayment of mortgage payments by the owner. The condition of these properties can vary from minor cosmetic issues to severe structural damage or neglect. Investors often seek out distressed properties as they offer opportunities for potential profits through renovation and resale, or rental income once restored.