Every real estate investor aims to get the best deals and greatest opportunities when buying investment properties. An interesting and widely popular way of rental property financing is investing in foreclosed homes. This investment strategy, however, brings controversial opinions in the real estate society. Therefore, as a new real estate investor or a one who has not previously purchased a foreclosure, you probably have some questions. You may ask: “How to buy a foreclosed homes?” and “What happens if you buy a foreclosed home?” The answer to neither of these questions is simple. However, exploring what happens if you buy a foreclosed home is crucial if you are a property buyer.
#1 What Happens If You Buy a Foreclosed Home: What Is Foreclosure?
Before getting to explore what happens if you buy a foreclosed home, we need to get a good understanding of what foreclosure actually is. Foreclosure is a situation which occurs for various reasons. One of the main reasons, however, is when the home owner is unable to continue with the payment of his/her mortgage and interest rate. This allows the mortgage lender (usually a bank) to legally seize the property and sell it to another property buyer. In this process, the mortgage lender aims to recover the balance of the loan which the owner could not pay. As the lender is trying to get even, rather than make profit, the prices of foreclosures are typically way lower. In order to properly learn how to buy a foreclosure, we need to acknowledge that there are other reasons behind such situations as well. Foreclosures may happen voluntarily as well. For instance, it is sometimes the case that the owner needs to quickly move away for a job and leaves the property behind.
#2 What Happens If You Buy a Foreclosed Home: How to Buy a Foreclosure?
Rental property financing is not an easy task, especially when it comes to foreclosures. Before exploring the consequences – what happens if you buy a foreclosed home – we need to firstly review how to buy a foreclosure. There are several important steps the property buyer needs to consider when learning how to buy foreclosed homes.
- Carefully Choose the Location
The same as when investing in any type of real estate, when understanding how to buy foreclosed homes, you need to take in mind the location. The only difference here is that the process goes backwards. When buying investment properties, the real estate investor typically chooses the location first and the property second. However, foreclosures are the opportunities that real estate investors are searching for. Thus, when considering investing in a foreclosed property, explore its surroundings as well. For instance, make sure that there is a demand for rentals in the local market.
- Consider the Potential Associated Costs
Buying investment properties is not cheap. Nevertheless, when buying foreclosures, there is a greater risk involved. It might be the case that the owner did not take good care of the property, hence, there are many things that need to be repaired. Such fixes, even when small ones, may increase the costs associated with the property tremendously. Therefore, it is advisable to consider these potential expenses prior to purchasing a foreclosed home.
- Consider the Method of Your Rental Property Financing
Another thing to take in mind is the financing method for your property. When buying foreclosed homes, offering cash is a great advantage over the other interested property buyers. The reason behind this is the fact that lenders try to get the balance for their loan as quickly as possible. Thus, offering cash can get you to seal the real estate deal faster. Additionally, this might give you the opportunity to bargain on the property price and buy it at an even greater discount.
- Do a Home Inspection
As previously described, foreclosed homes come at greater risk due to the unexpected costs you might face after buying them. That is why doing a home inspection is of crucial importance if you want to make a good deal. Home inspection means that you, or another licensed professional, go over the foreclosure and explore for any possible damages. Doing this will help you better evaluate the potential costs, associated with the foreclosure. Moreover, you can use it as an indicator of whether or not this real estate investment property is worth the risk.
#3 What Happens If You Buy a Foreclosed Home: The Benefits
Finally, we get to discussing what happens if you buy a foreclosed home. There are various benefits associated with buying a foreclosure. However, there are two major advantages:
- Great Discounts
As you already know, foreclosed homes come at great prices. Not only this, but due to the hurry to sell the property, you might have the chance to bargain and get the price even lower. Therefore, buying a foreclosure is a great opportunity to use these discounts in your advantage. Buying investment properties at a lower price increases the potential return on investment you will get from the property.
- Great Opportunities
Additionally, due to their low prices, foreclosures offer real estate investors with great opportunities. As the property prices are not as high, you may finance a rental property you would not be able to in another scenario. For instance, you might find a luxurious foreclosed home and be able to afford it. Investing in such real estate investments will help your real estate investing business grow.
#4 What Happens If You Buy a Foreclosed Home: The Obstacles
Sure enough, when reviewing what happens if you buy a foreclosed home, we need to get to the obstacles as well. The truth is that foreclosures are a great chance for investment if you can avoid the obstacles related to them.
- Big Competition
Due to the discounts, there are many real estate investors who are interested in purchasing foreclosures. As the best foreclosure deals on the market are not so many, there is a big competition when it comes to purchasing one of the great properties. This might result in not getting the so desired property. Hence, it is considered as one of the biggest obstacles when financing a foreclosure.
- You Are Never 100% Sure What You Get
Another obstacle is the little to no time to properly view and inspect the foreclosed property. This, surely, makes the real estate investor make a quick decision on whether or not to invest in the property. The risk here is that the real estate investor can never be certain of the condition of the foreclosure. Thus, he/she might purchase a property which needs many repairs and is associated with many costs.
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