When looking for investment properties, you ask yourself: Should you buy a foreclosed home? Is it a good idea to do so? Why or why not? That is exactly what we are going to be talking about, so keep reading.
Foreclosed homes are great opportunities when it comes to buying properties. However, should you buy a foreclosed home for your investment business?
We are not here to give you a straightforward answer. For some real estate investors, it makes sense to buy foreclosed properties for investment purposes. However, keep in mind that it is not for everyone. There are always advantages and disadvantages to every aspect of real estate investing. We are going to break it down for you, so it would be easier for you to make up your mind when deciding should you buy a foreclosed home as a real estate investor.
Should you buy a foreclosed home for investment: Is buying foreclosed properties for investment for you?
First of all, you can’t just jump into something without knowing whether it is the right thing for you or not. As any other path in business, you have to decide whether you have what it takes to invest in foreclosed homes.
As for us, we do not recommend that you invest in foreclosed properties unless you have the experience. Know that buying foreclosed homes for investment purposes requires real estate knowledge. We are not saying that in terms of getting a masters degree, of course. But, it is important that you educate yourself on a foreclosure before stepping into it. If you are a beginner real estate investor, we do not think that it is something you want to begin your business with. Instead, try to go with simple property purchases at first. Then, as you acquire experience with investment properties, you can start looking for foreclosed homes to invest in.
Should you buy a foreclosed home for investment: Reasons you should buy a foreclosed home
Here are the reasons to give a positive answer to the question “Should you buy a foreclosed home when looking for investment properties?”:
- Low price: The best part about foreclosed homes is their low price as the sellers are looking to get rid of the property as soon as possible. Therefore, you can get a foreclosed home for less than its actual market value.
- Lower loan payments: Another great feature of buying foreclosed homes is the lower loan payments. When you finance your property with a loan, you are already buying lower than the market value. This means that you are going to have to borrow less and arrange for lower monthly payments. However, it does not stop at the loan payments. You also get to benefit from low down payment. This is especially beneficial for beginner real estate investors who are investing with little capital on hand.
- Appreciation: As with all other investment properties, foreclosures are still subject to appreciation. The only reason the property is sold for a cheap price is its distressed condition.
- Generate wealth: Investing in foreclosed homes is one of the best ways to generate wealth. After all, you buy the property for lower than the market price. It will need some renovations, but there are cases when you won’t need to do much. Therefore, you can apply some improvements to increase the market value of the property. After that, you can sell it for a higher price.
Should you buy a foreclosed home for investment: Reasons you should not buy a foreclosed home
Now that you know why should you buy a foreclosed home for investment purposes, here are the reasons why you should not do so:
- You buy the property as it is: When we say “as it is”, we mean as the original owner or tenant left it. Usually foreclosed homes are in a distressed situation. Therefore, you will have to do renovation as well as repairs. Keep in mind that this is when property inspection comes into play. It is important that you check it out to be able to estimate the repair costs. If you end up with a foreclosed property in a miserable condition, then that is a lot of money to put into renovations. Know that even a foreclosed home can be a financial disaster if you do not do proper math.
- It might not be a good deal after all: This is exactly why you need to work with a real estate agent specialized in foreclosed homes. Real estate agents are professionals and know how to find the best deals. They will help you perform comparative market analysis to compare the foreclosed property to others within the same area to check whether it is a good deal or not. At the end of the day, it does not matter whether you bought the property for lower than the market price. There are also other factors that determine the profitability of the property. You should check the location, perform market analysis, and do the real estate metric calculations.
Should you buy a foreclosed home for investment: How to get the best foreclosure deals
- Pay cash: If you have cash on hand, then go ahead and pay all in cash. The thing about paying in cash is that it increases your chances of getting the deal. Cash payers are a foreclosure seller’s favorite. Therefore, if you have the money, skip the process of financing.
- Check the appreciation rate: This is actually related to the location of the property. Some properties experience a higher appreciation rate at certain locations. So, make sure to check that out as you want to profit in the long term as well as in the short term.
- Work with a real estate agent: As we have mentioned before, real estate agents are professionals, so they know where the best deals are. They also know what to look for in an investment property even if it’s s foreclosure. So, hire a real estate agent who has experience with foreclosed homes and make sure that you keep up with his/her advice.
- Repair costs: The best deal is the one that requires less in expenses. Every dime you spend on the property will add up to its expenses. Therefore, inspect the property and check how much you will have to spend on renovations. If it takes too much to repair, then what is the point?
Should you buy a foreclosed home: Conclusion
Now that you know this much, it is easier for you to make up your mind. It all depends on your financial situation as well as your experience. Foreclosed homes make great investment opportunities if you deal with them in the right way. If you are still wondering should you buy a foreclosed home when looking for investment properties, check out Mashvisor’s blog to learn more about foreclosures.