Investment Strategies Buying Foreclosed Homes as Investment Properties: Yes or No? by Yoana Leusin April 16, 2018April 9, 2018 by Yoana Leusin April 16, 2018April 9, 2018 Many real estate investors ask the same question “How to make money from real estate?” over and over again. Some of them consider buying foreclosed homes as the best real estate investments. Of course, buying a cheap property intrigues everyone. However, what to look for when buying a foreclosed home? What are the pros and cons of buying a foreclosure? Finally, do you really need a real estate agent to help you with property valuation of foreclosed homes? If you are ready to find out, keep on reading! #1 What Are Foreclosed Homes? Before stepping in and answering if you should or should not buy foreclosed homes, let’s explain the main idea of foreclosed homes. Foreclosure occurs for different reasons. However, the most common one is when homeowners fail to pay the mortgage. This gives all the legal rights to a lender (usually a bank) to evict the tenants and put the property on sale for a lower price than its market value. At this point, a house investor is able to purchase a cheap property rather than more expensive investment properties. This is because you are able to buy foreclosed homes at lower than the initial property price. If you want to learn more about a foreclosed home, make sure to read “Real Estate Questions: What Happens if You Buy a Foreclosed Home?” #2 Pros and Cons of Buying a Foreclosure There are great advantages when buying foreclosed homes. However, if you are not prepared with the knowledge about the process, there are pitfalls you need to take into consideration. Make sure to review the pros and cons of buying a foreclosure in order to avoid unpleasant surprises. Advantages of Buying a Foreclosed Home: The Price One of the first advantages when buying a foreclosed home is the low property price. When a lender is in a hurry to sell the property, you may have the chance to bargain to get even a lower property price. Thus, when buying foreclosed homes, make sure to use the opportunity to negotiate the price to your advantage. Consequently, buying an investment property at a lower price increases the potential return on investment you will get from the property. Curious to learn more about buying an investment property? Make sure to read “Buying an Investment Property: Cash or Mortgage?” Advantages of Buying a Foreclosed Home: Financial Gains In the best case scenario, buying foreclosed homes can bring you major financial advantages since you are buying an investment property below the market value. If the property value appreciates and you decide to sell, the property in question could return even bigger gains. Disadvantages of Buying a Foreclosed Home: You Do Not Know What You Buy Well, you buy the property as it is, after the owner or tenant has left it. There is a chance that the person will be upset about losing the property and might damage it. Therefore, you will have to do some renovations as well as repairs. Make sure to estimate the repairing costs in advance. Even though it might be categorized as a cheap property, if it is in a miserable condition, you may pay a lot for the renovation. Disadvantages of Buying a Foreclosed Home: Inherited Debt Make sure you check the history when buying a foreclosed home as you may become responsible for any debt connected to the foreclosed homes. You may be facing serious amounts such as the construction loans, unpaid tax obligations, etc. Make sure to take the time to understand what you might be dealing with. Disadvantages of Buying a Foreclosed Home: High Competition Foreclosed homes may attract huge interest because of the incredible property price and the high property value they can reach. As the best foreclosure deals are far and few in between, there is great competition when it comes to purchasing the best real estate investments. Not only will you be competing with real estate investors seeking a primary residence, but also with the real estate investors who often make all-cash offers. #3 Should You Say “Yes” or “No” to Foreclosed Homes? If you are still wondering if you are ready for this type of real estate investing strategy, make sure to go through the questionnaire below. Additionally, filling in the questionnaire will answer another important question: “What to look for when buying a foreclosed home?” If every real estate investing question is answered with yes, then buying foreclosed investment properties is a good choice for the house investor. Question Number One: Is My Budget in Good Shape? When buying a foreclosed home, the possibility of having additional costs should not be ignored when budgeting the purchase. You may spend extra on construction and repair works, on the research for the best foreclosure investments, etc. Before dealing with a foreclosure, make sure you are financially prepared for any surprises that pop out along the way. Question Number Two: Did I Hire a Real Estate Agent? A real estate agent will help you with the distressed property buying process. Make sure to hire a real estate agent with connections in the foreclosure market as it will help you to locate the best real estate investments. Moreover, a real estate agent will be familiar with foreclosure laws and will do the paperwork the right way. Question Number Three: Do I Have a Budget to Accommodate for vacancy? Depending on the condition of the foreclosed property, a house investor will need to accomplish some repairs before renting the property to tenants. Even if the property is usable, without complete renovation, the residence might be unpleasant to stay in. Make sure to have a budget to accommodate for the costs of vacancy. Question Number Four: Am I Ready for the Roller-Coaster Ride? Buying a home at any stage in the foreclosure process is not simple. So, it is important to be honest with yourself about whether or not you are ready to be a part of such a real estate investing business. Want to make sure you are ready? Then, this blog “Real Estate Questions: Should I Buy a Foreclosed Home?” will help you to decide. To learn more about all aspects of foreclosure, continue reading our blog. Start Your Investment Property Search! START FREE TRIAL Start Your Investment Property Search! START FREE TRIAL 0 FacebookTwitterGoogle +PinterestLinkedin Yoana Leusin Yoana is an experienced content writer with a BA in leisure studies who enjoys giving tips to beginner real estate investors. 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