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Are Foreclosed Homes a Good Option for Rental Properties?

White Star House with Foreclosure Sign in YardPerhaps the most common issue why people hesitate to invest in rental properties is the price of housing. For many investors, however, the alternative is to look for reduced-price residential properties. Many properties that sell below market value are foreclosed homes. And at first glance, those reduced prices may seem like a great deal. However, before you start your property search, it is essential to carefully weigh both the pros and cons of buying a foreclosed home to use as a Winter Haven rental property.

The initial benefit of purchasing a foreclosed property for your future rental is the price. On several occasions, foreclosures can offer investors an assortment of lower-priced residential properties. Foreclosures tend to be priced below market rates because the banks that hold them would choose not to own real estate – they want their money. This makes the banks motivated to sell. Of course, it is best to understand why foreclosures are often sold at a reduced price since they aren’t usually in good condition. Yet, if you have the skills or budget to do some fixing up, a foreclosed home might be the best option.

The lower cost of foreclosed homes may result in a second valuable benefit: a big return on your investment. When you buy a property below market value, you will, most of the time, get a good amount of available equity in the property. When homes in your area increase in value, your property will appreciate, and your equity will thrive. Any repairs or improvements that you do to the property will only accelerate this process. A good cash flow property is ideal, but real estate investors’ real wealth comes from owning properties that have an expected resale value far beyond the original purchase price.

Along with these advantages, there are always a few drawbacks to keep in mind, too. Foreclosures are usually aligned to distressed properties, and not only due to the previous owners who stopped paying the mortgage. Oftentimes, cease any repairs or maintenance on the home, as well. That is why foreclosed homes are often in rough shape by the time they are sold by the bank. In other places, the homeowners even damage or vandalize the property before leaving, necessitating extensive and costly repairs. Before you buy a foreclosure, take the time to understand everything as much as possible, and have enough cash on hand to cover the cost of getting the property ready to rent.

Another drawback of purchasing a foreclosed property is the competition. A lot of investors are targeting the next bargain property just like you. Sometimes there can be a lot of competition for the same property. If the competition becomes especially intense, it could delay the purchase process or even drive the property’s price up to and out of an affordable price range. You might also be forced to offer a higher down payment or other incentives to catch the bank’s eye, which means having a lot of cash on hand. If you invest in your first rental property or find it challenging to get good financing, a foreclosed property is not for you.

So is a foreclosed property a good option for your next Winter Haven rental? The answer depends on your circumstances. Would you like to know more about ways to locate and buy rental properties below the market rate? Contact us online or give us a call at 863-302-8752.

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.