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Are Foreclosed Homes a Good Option for Rental Properties?

White St Peters House with Foreclosure Sign in YardOne of the major reasons people hesitate to invest in rental properties is the price of housing. While it is true that high property prices may be a struggle for some, for other investors, the remedy is to look for reduced-price residential properties. Various properties that sell below market value are foreclosed homes. And at first glance, those discount prices may seem like a decent deal. Nonetheless, before you start your property search, it’s beneficial to carefully weigh both the pros and cons of buying a foreclosed home to use as a St. Peters rental property.

Probably the most obvious benefit of purchasing a foreclosed property for your upcoming rental is the price. In most instances, foreclosures can offer investors an assortment of lower-priced residential properties. Foreclosures tend to be priced below market rates as the banks holding them may not want to own real estate – they only need their money. This makes the banks motivated to sell. Certainly, it is significant to understand why foreclosures are often sold at a reduced price because they aren’t typically in good condition. But if you’ve got some skills or budget to conduct a little fixing up, a foreclosed home may be the best choice for you.

The lower cost of foreclosed homes can lead to a second valuable benefit: an excellent return on your investment. If you buy a property below market value, generally, you will get a good amount of available equity in the property. As homes in your area increase in value, your property will appreciate, and your equity will grow. Any repairs or improvements that you make 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 above the original purchase price.

Although these are both wonderful upsides, there are correspondingly a few drawbacks to foreclosures that you should keep in mind. Foreclosures are usually classified as distressed properties, and not just because the previous owners stopped paying the mortgage. Frequently, they stop doing repairs and maintenance on the home, too. This is why foreclosed homes are always in rough shape every time they are finally repossessed and sold by the bank. Occasionally, the homeowners even damage or vandalize the property before leaving, necessitating extensive and costly repairs. Before you decide to acquire a foreclosure, make sure you know what you are going to buy and have enough cash reserved to cover the cost of getting the property ready to rent.

One more crucial drawback of buying a foreclosed property is the level of competition. Aside from you, various investors are looking for the next bargain property. It is not unique for there to 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 will also have to offer a higher down payment or other incentives to catch the bank’s eye, so you are required to have 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 may not be suitable for you.

So is a foreclosed property a good option for your next St. Peters 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 636-542-8852.

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.