Myth or Truth?
Determining what is a myth and what is truth seems to be one of the mysteries of the world. Myths have slithered into every aspect of the world, even foreclosed homes.
Today, Mashvisor is playing myth-buster. We plan to give you 6 myths and bust, bust, bust! As a real estate investor, you need to know the truth from the myth. As you’re looking into buying foreclosed homes, you want to separate fact from fiction. So, here are 6 myths and truths of buying foreclosed homes.
6 Foreclosed Homes Myths & Truths
Foreclosed Homes Myth: Foreclosed homes are ALWAYS a bargain
Truth: Lenders are trying to maximize the returns on foreclosed homes. These days, those same lenders are starting to offer even larger discounts to buyers to get the property off the books. You will find, however, many foreclosed homes need some serious repairs. Pinpointing what those exact investment property costs are can be complicated. They are not always the biggest bargains.
Foreclosed homes are normally discounted significantly from what the original buyer had paid. However, the discount appears a lot less significant when compared to the value of today’s U.S. real estate market and prices of similar homes.
Foreclosed Homes Myth: Buying foreclosed homes is risky
Truth: Real estate risks are inevitable. You can mitigate them as much as possible, but completely neglecting the idea of a real estate investment risk is impossible. You are a risk taker when you choose real estate investing as your passion.
Yes, foreclosed homes sold at auctions come with their risks. Even the risk that you will take on the former owner’s liens and loans alike. However, most real estate investors, like you, are looking for foreclosed homes that the bank owns. These homes are listed in the open U.S. housing markets like any other ‘normal’ home. Realistically, these homes are no riskier than any other non-foreclosure homes. Low risk investing is possible, but don’t pass up on real estate investment opportunities strictly because they are not considered low risk investments.
Foreclosed Homes Myth: Foreclosures are more likely to lose their house market value than the typical investment property
Truth: This is a big no-no. Actually, since foreclosed homes are often discounted from the home’s current market assessment, there is some degree of protection from further depreciation. Loss of house market value is dependent on the local U.S. real estate market dynamic (like the area’s supply, demand, interest rates, employment market etc.) It is NOT dependent on whether or not it was a foreclosure at the time of purchase.
Foreclosed Homes Myth: You Should Lowball the Banks with your Offers
Truth: Some of you may be thinking “Banks are desperate to give foreclosed homes away.” We hate to break it to you, but this is far from the case. Of course, they want to be able to resell the home, but they are not ‘desperate’ per say. Banks mainly service defaulted loans-they don’t own the foreclosed homes.
Who does? Various investors do. These investors hold the banks accountable to sell these foreclosed homes at as high of a price as financially possible (helping them cut their losses.) So no, low ball offers to the banks will not help the purchase situation. The majority of the time, banks will not even consider extremely low offers.
Before banks even consider a lowball offer, you will find them reducing the list price first. They then test the waters to see if they attract a higher offer than the lowball deal they originally were offered. They are playing the game right, and so should you.
Related: How to Buy Foreclosed Homes from Banks and Why They Are So Great
Foreclosed Homes Myth: The purchase needs to be in cash!
Truth: Now, this is not entirely false. IF you buy foreclosed homes on the courthouse steps, you should prepare yourself to bring a cashier’s check and pay on the spot. Normally, however, you would buy foreclosed homes through a regular real estate transaction. That means you would, in fact, be able to obtain a mortgage to finance the home as if it was not foreclosed.
There is some truth to this myth, as in some U.S. real estate markets, banks prefer offers from cash buyers. This is normally the case when the investment property’s condition isn’t too great. Why? The bank knows it will be tough for you to obtain proper financing. Check out which case you fall into, as you will most likely not even be required to pay in full cash.
Related: Buying an Investment Property: Cash or Mortgage?
Foreclosed Homes Myth: Foreclosed homes can be easier to buy as a buyer with bad credit, so long as you get an investment mortgage with the bank that owns the property
Truth: Now, we want you to think about this one for a second. Why would a bank take the chance of ending up with the same investment property as a foreclosure again? Unfortunately, that is just what could happen if they allowed buyers with low credit scores to purchase these foreclosed homes (just to earn interest on the investment property mortgage).
Realistically, banks are willing to offer incentives such as lower fees or closing cost credits if you go ahead and use their bank for an investment mortgage. However, if you plan on buying foreclosed homes for investment rental income, you need to meet the requirements the bank sets. Meet the credit score, income, and their other qualification standards to seal the deal.
We annihilated some of those foreclosed homes myths that you may hear/think as a real estate investor. Some had a bit of truth beneath them, but the majority of them spelled out F-A-L-S-E. No matter the case, you know fact from fiction now.
Ready to start looking for a foreclosed home? Check out the video below to learn about 9 different ways to start your investment property search:
Related: Real Estate Questions: Should I Buy a Foreclosed Home?
If you are planning on buying foreclosed homes for investment, you want to make sure you are getting your money’s worth. With a property valuation, you can get an idea of just how much money the foreclosed home is going to be making you. Real estate predictive analytics will give you a projection of what the base numbers could look like for the investment property. Mashvisor can give you just that.
Rental income, occupancy rates, cap rate, and cash on cash return are only some of the real estate performance metrics we provide you. Check out Mashvisor’s real estate investing tools to find yourself owning the most profitable investments. Mashvisor myth-buster, out!
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.