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Are Foreclosed Homes a Good Option for Rental Properties?

White Burbank House with Foreclosure Sign in YardOne of the primary concerns that people hesitate to invest in rental properties is the price of housing. Although it is true that high property prices can be a problem for many, for some investors, the solution is to look for reduced-price residential properties. Most properties that sell below market value are foreclosed homes. And at first glance, those discount prices may look like a decent offer. Yet, before you start your property search, it’s imperative to carefully weigh both the pros and cons of buying a foreclosed home to use as a Burbank rental property.

The main and most obvious benefit of getting a foreclosed property for your future rental is the price. In certain instances, foreclosures can offer investors an assortment of lower-priced residential properties. Foreclosures tend to be priced below market rates because the banks that keep them don’t like to own real estate – they prefer their money. This causes the banks to be motivated to sell. Indeed, it is vital to understand why foreclosures are often sold at a reduced price because they aren’t usually in good condition. Yet, if you have the skills or budget to perform a bit of fixing up, a foreclosed home may be the best choice.

The lower cost of foreclosed homes can bring about a second valuable benefit: an exceptional return on your investment. When you acquire a property below market value, usually, 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 expand. Any repairs or improvements that you conduct to the property will only accelerate this process. A good cash flow property is ideal, but real estate investors’ real wealth originates from owning properties that have an expected resale value much more than the original purchase price.

Even though these are both beautiful rewards, there are still a few drawbacks to foreclosures that you should keep in mind. Foreclosures are frequently referred to as distressed properties, and not only because the previous owners stopped paying the mortgage. Many times, they stop doing repairs and maintenance on the home, too. Therefore, foreclosed homes are mostly in rough shape when they are finally repossessed and sold by the bank. In other scenarios, the homeowners even damage or vandalize the property before leaving, necessitating extensive and costly repairs. Before you purchase a foreclosure, you must understand what you are looking through and have enough cash reserved to cover the cost of getting the property ready to rent.

Another imperative drawback of buying a foreclosed property is the degree of competition. Including you, multiple investors are hunting for that next bargain property. It is not unusual for there to be a lot of competition for the same property. If the competition becomes especially intense, it might delay the purchase process or even drive the property’s price up to and out of an affordable price range. You might also need to offer a higher down payment or other incentives to catch the bank’s eye, which means you’re required to have a lot of cash on hand. If you invest in your first rental property or may have a problem acquiring good financing, a foreclosed property may not be the best option.

So is a foreclosed property a good option for your next Burbank 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 509-572-5440.

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.