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Are Foreclosed Homes a Good Option for Rental Properties?

White Sanford House with Foreclosure Sign in Yard

Among the many impediments for new rental real estate investors who would wish to purchase their first rental property is the cost. Nevertheless, while high property prices can be somewhat a pain for some, for other investors, the solution is to opt for reduced-price residential properties. Several properties that sell below market value are foreclosed homes. For first impressions, those discount prices might seem like a good deal. However, before making a purchase, it is important that you carefully evaluate both the pros and cons of acquiring a foreclosed home to use as a Sanford rental property.

Pro: Lower Prices

The first and most clear benefit of buying a foreclosed property to make use of as a rental is the price. Foreclosures tend to have priced below market rates because the banks that hold them don’t want to own real estate – what they want is the monetary value instead. More often than not, this makes all the banks motivated to sell. Of course, it’s also important to understand why foreclosures are regularly sold at a reduced price. The most common reason is that the properties aren’t always in good condition. But if you have the skills or budget to make a little fixing up, a foreclosed home may be right for you.

Pro: Higher ROI

The lower cost of foreclosed homes can lead to a second major benefit: a high return on your investment. When you purchase a property below market value, you have a good amount of available equity in the property. As homes in your area increase in value, your property will appreciate, and your equity will grow. Any repairs or improvements you make to the property is only going to speed up this process. A good cash flow property is perfect, but real estate investors’ real wealth originates from owning properties with an expected resale value far above the original purchase price.

Pro: Flexible Financing

Every so often, the banks holding foreclosed properties are willing to unload them to buyers. Depending on the bank, they may be inclined to offer lower interest rates, closing costs, or other financing incentives to a stable buyer. For sure, this is not necessarily the case all the time, and some foreclosed properties are sold on a cash-only basis. Because of this, gather as much information as possible about a property prior to making an offer.

Con: Expensive Repairs

Along with the benefits, there are also quite a number of drawbacks to foreclosures to know about. Foreclosures are often referred to as distressed properties, not just because the previous owners stopped paying the mortgage. They frequently cease doing repairs and maintenance on the home, too. For this reason, foreclosed homes are often found in poor shape when they are finally repossessed and sold by the bank. Sometimes, the homeowners even damage or vandalize the property before leaving, demanding extensive and quite costly repairs. Before you buy a foreclosure, Sanford property managers must know what they are getting themselves into and have enough cash set aside to cover the cost of getting the property ready to rent.

Con: Slow Closing

The foreclosure process can leave your property in a real tangle of legal and financial troubles. From liens to title problems and beyond, there are numerous reasons why buying a foreclosed property from a bank often takes longer than a normal sale. For that reason, investors looking to purchase a foreclosed property should be ready for a lengthy process and many hurdles that will need to be overcome.

Con: Lots of Competition

Second important drawback of purchasing a foreclosed property is the amount of competition. Like you, there are plenty of investors that are searching for that next bargain property. It’s not unusual to see a lot of competition for the same property. If the competition becomes particularly intense, it could slow down the purchase process or even drive the property’s price up and out of an affordable price range. You may also need to bid for a higher down payment or other incentives to catch the bank’s eye, which means you’ll need a lot of cash. If you are investing in your first rental property or have trouble getting good financing, a foreclosed property may not be a suitable one for you.

 

So is a foreclosed property a good alternative for your next Sanford rental? The answer depends on your circumstances. For some investors, a foreclosure could offer a bargain property that will make a great rental. But for others, the difficulties of buying a foreclosure make it into a less desirable path to investing. Would you like to know more about ways to locate and purchase rental properties below the market rate? [Contact us] online or give us a call at 407-681-7802.

 

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