Have you ever considered buying foreclosed homes as a real estate investment? Maybe you haven’t because the very word “foreclosed homes” sends shivers down the spine of real estate investors and homeowners alike.
The truth is, however, that foreclosed homes can make for some of the best real estate investments, especially for this year. Why fear foreclosed homes when the very profit from this type of real estate can keep you from dealing with your own foreclosure?
Let us help you eliminate the fear of buying a foreclosed home. Find out why they are the best real estate investments 2018 and exactly what you need to know to jump into this real estate investing niche.
The Best Real Estate Investments 2018?
You’ve been warned against investing in foreclosed homes before, haven’t you? This is a general warning we issue when it comes to real estate investing for beginners. It’s because buying a foreclosed home isn’t an easy path to start your journey in real estate investing. But, in 2018, it might actually be the best type of real estate for beginners and more experienced real estate investors looking for new opportunities.
How does the state of the US real estate market 2018 come into play? Well, another word we know is going to make you tremble is “seller’s market.” The current housing market is a seller’s market. While many characteristics of a seller’s market can benefit real estate investors selling and buying an investment property, there are two obvious negatives:
- The massive amount of competition a real estate investor will meet
- The unaffordable investment property prices
Just by looking at these two issues a real estate investor can face in a seller’s market, it becomes apparent why foreclosed homes are the best real estate investments 2018. Even though the competition can be high on foreclosed homes, you’ll almost always purchase this type of real estate below market value. Even with some competition, it won’t be nearly as much as you’ll face in the most popular seller’s markets. That’s because while you’re busy prepping to buy foreclosed homes and overcoming the fear of this investment property type, the majority of real estate investors will still refuse to turn to such investment properties.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
An affordable investment property that has less competition in a seller’s market? What else can hold the title of best real estate investments 2018 other than that? Of course, even the best real estate investing opportunities can turn sour quickly if you don’t know what you’re getting yourself into.
Learn More: The Pros and Cons of Buying a Foreclosure
What to Consider Before Buying Foreclosed Homes
The Real Estate Market
Just as you would take the time to carefully choose a real estate market for any other type of investment property, you have to do the same for foreclosures. Once you’ve invested in the foreclosed home and repaired it, you can take two different routes:
- Sell it for a return on investment
- Rent it out and receive rental income
For either real estate investment strategy, the real estate market has to be performing well for you to get a good return on investment. It should be one in which the economy is thriving with increasing job opportunities and population. With these characteristics, you’ll likely find a seller’s market, making foreclosed homes an even better real estate investing opportunity there. The after-repair value can end up being extremely high thanks to real estate comps in the area and the demand for rental property in this kind of real estate market will ensure high rental income as well. Choose wisely!
Choose wisely with this list: The Best Cities to Invest in Rental Properties 2018
The Foreclosure Process
There are three stages of the foreclosure process and you’ll have to choose at which point you want to go after the investment property. There’s pre-foreclosure (short sales are a common type) where a real estate investor deals with the owner of the investment property directly. Next is the house auction where real estate investors bid for the investment property. Finally, the last stage involves REO (real estate owned) property which is when a real estate investor would have to buy foreclosed homes directly from the bank.
Each stage has its pros and cons and, depending on your real estate investing strategy, you have to decide which one works best for you. You can learn about each stage in depth by reading: “How to Buy Foreclosed Homes from Banks and Why They Are So Great.”
The Investment Property Financing
In some stages of foreclosure, like the auction, a real estate investor will have to have a cash investment on hand and ready to go. In other stages, things move a lot faster if you are pre-approved for a rental property mortgage. Be sure to have investment property financing lined up so you don’t miss out on the best foreclosed homes.
The Foreclosed Home
The most important aspect of investing in foreclosed homes will be the real estate investment analysis of the property itself. Not every foreclosed home is the best real estate investment. The important thing here is the return on investment and what kind of hit it will take due to any repairs needed. The #1 reason real estate investors avoid foreclosures is the needed repairs, damage, and general neglect of these investment properties. If you’re not careful, you’ll quickly end up with a permanent negative cash flow property.
The best way to approach investing in foreclosed homes is to approach it with a rental property calculator in hand. A rental property calculator allows you to enter in any expenses for an investment property and see just how the return on investment will fare. This real estate investment tool also provides real estate comps so you can figure out the after-repair value and know if the endeavor is worth it or not.
Try Mashvisor’s rental property calculator. To start your 14-day free trial and subscribe to our services with a 20% discount after, click here.
Don’t get caught in the fire of a hot seller’s market. Instead, go with foreclosed homes. Pay less up front and sell after real estate appreciation has taken its course or rent it out and make a killing in rental income. Either way, foreclosed homes can be the best real estate investments 2018.
What has been your experience with buying a foreclosed home? Share it with us in the comments below.
Get started on the right path of buying foreclosed homes: Avoid These Mistakes When Buying a Foreclosure