For investors and individuals looking for a good deal on a property, foreclosures can offer a lot of upside. However, due to the circumstances surrounding a foreclosure, it is important to approach these transactions carefully. Foreclosures are often a farm more complicated process than purchasing a home from an individual owner. With an REO, you are purchasing property from a bank where the previous owner probably left under unpleasant circumstances. It can be expected that with most foreclosures the property will need major repairs and may even be uninhabitable in its current condition. The title to the property may also be complicated. It can be a great investment opportunity for people looking for alternative investments strategies to build wealth but one the requires taking cautious steps to mitigate risk.
The longer the bank has had possession of the property the more work that will need to be required. With many foreclosures, the owners were unable to afford to maintain the property. Chances with purchasing a foreclosure is that you will need to invest in repairing and renovating the home. It’s common for former owners to vandalize the property including removing all the appliances before vacating it. Roofs in disrepair, plumbing and electrical problems and other issues are also quite common. The lower the price, the more repair the property will need.
Whether you are purchasing homes as an investment to flip or turn into a second source of income as a rental property or to personally live in, you will need to do a complete inspection of the property and due diligence on the title prior to buying it. It’s probably wise to bring in a contractor, plumber, and electrician to look at the home to make sure you have an accurate assessment of what will need to be done and how much it will cost. It will impact how much you are willing to pay the bank for the property, as well as provide you with a clear picture of how much you will need to invest to renovate the property.
Foreclosures are often bought up and flipped in areas undergoing large amounts of redevelopment to be turned into rental properties. Areas with large sections of foreclosure are better for investment and flipping, where as a single foreclosure in a neighborhood with a low percentage of overall foreclosures tends to be a potentially good deal for someone looking to purchase a foreclosure as their personal home such properties can be an opportunity to purchase a below market price home.
Foreclosures tend to favor cash buyers and banks prefer all cash too. While the good deal of a foreclosure can seem attractive, unless you really are in a position to make it an investment there can be quite a bit of downside. For investors looking for alternative investment strategies buying up a series of foreclosures in an up and coming neighborhood can be a sound strategy as is also turning blocks of single family homes into multi-family rentals. We expect to see a lot more of these types of purchases in the next few years as the demand for rentals continues to grow.
Michelle Farber Ross