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Are Foreclosed Homes a Good Option for Rental Properties?

White Davie House with Foreclosure Sign in YardOne of the bigger reasoning that people hesitate to invest in rental properties is the price of housing. While it is true that high property prices can be a stumbling block for some, for other investors, the resolution is to look for reduced-price residential properties. Many properties that sell below market value are foreclosed homes. And at first glance, those discount prices may seem like a good deal. Nevertheless, before you start your property search, it’s crucial to carefully weigh both the pros and cons of buying a foreclosed home to use as a Davie rental property.

The first and most obvious benefit of acquiring a foreclosed property for your next rental is the price. In many instances, foreclosures can offer investors an assortment of lower-priced residential properties. Foreclosures tend to be priced below market rates because the banks that hold them don’t want to own real estate – they want their money. This makes the banks motivated to sell. Obviously, it’s vital to understand why foreclosures are often sold at a reduced price because they aren’t always in good condition. Nonetheless, if you have the skills or budget to do a little fixing up, a foreclosed home may be perfect for you.

The lower cost of foreclosed homes can result in a second valuable benefit: a high return on your investment. When you purchase a property below market value, in most instances, you will 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 that you make to the property will only accelerate this process. A good cash flow property is ideal, but real estate investors’ real wealth comes from owning properties that have an expected resale value far above the original purchase price.

While these are both excellent benefits, there are also a few drawbacks to foreclosures that you should keep in mind. Foreclosures are frequently called distressed properties, and not just because the previous owners stopped paying the mortgage. For so many times, they stop doing repairs and maintenance on the home, too. For that reason, foreclosed homes are often in rough shape when they are finally repossessed and sold by the bank. In some cases, the homeowners even damage or vandalize the property before leaving, necessitating extensive and costly repairs. Prior to you buying a foreclosure, make sure you know what you are getting yourself into and have enough cash reserved to cover the cost of getting the property ready to rent.

One more important drawback of buying a foreclosed property is the amount of competition. Like you, many investors are looking for that next bargain property. It is not unusual for there to be a lot of competition for the same property. If the competition becomes especially intense, it could delay the purchase process or even drive the property’s price up to and out of an affordable price range. You may likewise need to offer a higher down payment or other incentives to catch the bank’s eye, which implies you’ll need to have a lot of cash on hand. If you invest in your first rental property or may have trouble getting good financing, a foreclosed property may not be your best choice.

So is a foreclosed property a good option for your next Davie rental? The answer depends on your circumstances. Would you like to know more about ways to locate and buy rental properties below the market rate? Contact us online or give us a call at 305-930-7867.

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.