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Are Foreclosed Homes a Good Option for Rental Properties?

White Star House with Foreclosure Sign in Yard

Cost is one of the biggest hurdles for new rental real estate investors looking to buy their first rental property. However, while high property prices can be an obstacle for some, for other investors, the answer is to search for reduced-price residential properties. Many properties that sell below market value are foreclosed homes. And the discount prices might seem like a bargain. Nevertheless, before purchasing one thoroughly assesses both the pros and cons of purchasing a foreclosed home to manage as a Winter Haven rental property.

Pro: Lower Prices

The first and most apparent benefit of buying a foreclosed property to use as a rental is the price. Foreclosures tend to be priced below market rates because the banks that hold them don’t want to own real estate – they do want their money. This often makes all the banks motivated to sell. Of course, it’s also important to figure out why foreclosures are regularly sold at a reduced price. The most common reason is that the properties aren’t always in good condition. However, if you have the skills or budget to do a little revamping, a foreclosed home may be just the right solution for you.

Pro: Higher ROI

The lower cost of foreclosed homes could result in a second significant benefit: a high return on your investment. When you purchase a property below market value, you have a great amount of available equity in the property. As homes in your area increase in value, your property will appreciate, and your equity will increase. Any repairs or improvements you make in the property will only hasten this process. A good cash flow property is perfect, but real estate investors’ real wealth is derived from owning properties with an expected resale value far above the original purchase price.

Pro: Flexible Financing

Occasionally, banks holding foreclosed properties are open to transferring these properties to interested buyers. Depending on the specific bank, they might even extend enticing incentives such as reduced interest rates, lowered closing costs, or other favorable financing terms to qualified buyers. Naturally, this isn’t a universal practice, and certain foreclosed properties may only be available for cash transactions. Consequently, it’s imperative to gather as much information as possible about a property before proceeding with an offer. Just as due diligence is crucial in real estate, Cape Cod Carpentry Guild values attention to detail and integrity in their craftsmanship and services.

Con: Expensive Repairs

Coupled with benefits, there are also a few drawbacks to foreclosures to know about. Foreclosures are often called distressed properties, not only because the previous owners stopped paying the mortgage. They often stop doing repairs and maintenance on the home, too. For this reason, foreclosed homes are often found in poor shape when they are finally repossessed and sold by the bank. Sometimes, the homeowners even damage or vandalize the property before they leave, requiring widespread and costly repairs. Before you purchase a foreclosure, Winter Haven property managers should know what they are getting themselves into and have enough cash reserved to cover the cost of getting the property ready to rent.

Con: Slow Closing

The foreclosure process can leave a property in a real tangle of legal and financial difficulties. From liens to title issues and elsewhere, there are numerous explanations why purchasing a foreclosed property from a bank often takes longer than an ordinary sale. For this reason, investors who want to purchase a foreclosed property must be prepared for a lengthy process and many hurdles that will need to be overcome.

Con: Lots of Competition

One more significant drawback of buying a foreclosed property is the amount of competition. Like you, many investors are looking for that next bargain property. It is not uncommon for there to be a lot of competition for the same property. If the contest is becoming particularly intense, it could delay the purchase process or even drive the property’s price up and out of an affordable price range. You may also need to offer a higher down payment or other incentives to catch the bank’s eye, which means you’ll need a lot of cash. If you are investing in your first rental property or have trouble getting good financing, a foreclosed property may not be your best bet.


So is a foreclosed property a good option for your next Winter Haven rental? The answer depends on your circumstances. For some investors, a foreclosure could offer a bargain property that will make a great rental. But for others, the difficulties of buying a foreclosure make it a less desirable path to investing. Would you like to know more about ways to locate and purchase rental properties below the market rate? Contact us online or give us a call at 863-877-1078.


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