One of the most significant barriers for new rental real estate investors looking to buy their first rental property is the cost. While high property prices may be an impediment for some, looking for reduced-price residential properties may be the best solution for others. Many properties that sell below market value are foreclosed homes. Those reduced prices may appear to be a steal at first glance. However, before you buy one, you should carefully weigh the benefits and drawbacks of purchasing a foreclosed home to use as a Bainbridge rental property.
Pro: Lower Prices
The price is the first and most obvious advantage of purchasing a foreclosed property to rent out. Because banks that hold foreclosures don’t want to own real estate; they just want their money, they tend to be priced below the market. Banks are frequently motivated to sell as a result of this. Of course, understanding why foreclosures are regularly reduced in price is also critical. The most common reason for this is that properties aren’t always in good condition. A foreclosed home, on the other hand, may be ideal for you if you have the skills or budget to do some minor repairs.
Pro: Higher ROI
The lower cost of foreclosed homes can result in a second important benefit: a high return on your investment. When you purchase a property below market value, 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 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 with an expected resale value far above the original purchase price.
Pro: Flexible Financing
Banks that own foreclosed properties are sometimes eager to sell them to buyers. Depending on the bank, they may be willing to offer a solid buyer a lower interest rate, closing costs, or other financing incentives. Of course, this isn’t always the case, and some foreclosed homes are only sold for cash. As a result, before making an offer on a property, gather as much information as possible about it.
Con: Expensive Repairs
Alongside benefits, there are also a few drawbacks to foreclosures to know about. Foreclosures are often called distressed properties, not just because the previous owners stopped paying the mortgage. They often stop doing repairs and maintenance on the home, too. For this reason, foreclosed homes are often in rough shape when they are finally repossessed and sold by the bank. Sometimes, the homeowners even damage or vandalize the property before leaving, necessitating extensive and costly repairs. Before you buy a foreclosure, Bainbridge property managers need to know what they are getting themselves into and have enough cash reserved to cover the cost of getting the property ready to rent.
Con: Slow Closing
The foreclosure process can leave a property in a real tangle of legal and financial difficulties. From liens to title issues and beyond, there are many reasons why buying a foreclosed property from a bank often takes longer than a regular sale. For this reason, investors who want to purchase a foreclosed property should be prepared for a lengthy process and many hurdles that will need to be overcome.
Con: Lots of Competition
Another significant drawback of purchasing a foreclosed property is the amount of competition. Like you, many investors are looking for that next bargain property. It is not uncommon 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 and out of an affordable price range. You may also need to offer 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 your best choice.
So is a foreclosed property a good option for your next Bainbridge 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 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 440-534-6700.
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