Foreclosure is a legal process where a lender puts a house used as collateral for a loan back on the market to retrieve their loan balance. If the borrower can no longer make the mortgage payments, the lender will minimize any loss due to the defaulted mortgage.
Foreclosure investing, or the process of buying foreclosure homes and turning them for profit, has become more preferred recently. However, if you’re thinking of purchasing a home, you may be wondering if it’s a smart move to opt for a foreclosed house.
Here are some of the benefits that foreclosure investing offers:
Lower Sale Price
The banks who sell foreclosures are motivated sellers. They have to quickly sell the property and recoup the loan balance they could not recover. As a result, they accept low offers to facilitate a faster deal.
Moreover, foreclosure properties are cheap because they are often in distressed conditions. They are usually sold at a loss, sometimes 20 to 50 percent below the market price of other properties on the same street.
Essentially, a lower price for real estate means there is potential for higher returns. The discounted prices open up potential earnings for properties that would otherwise be unavailable to average investors.
Good for Equity Building
Another advantage of foreclosure investing is increasing equity. When you purchase a foreclosure house, and it falls below the market value, it’s not always a bad thing. When the properties in that neighborhood increase their value because of development, you can look forward to acquiring more equity than your neighbors.
Furthermore, foreclosure properties are bought “as is” and often require renovations and repairs. Usually, you can use the renovation process to increase the home’s value.
Faster Transaction
As mentioned, lenders sell foreclosure homes to try and collect as much unpaid debt as possible. It means that with the right price, the foreclosure real estate deals can close faster than traditionally purchasing an investment property.
Most of the time, contracts are already prepared and waiting for a viable buyer. It means that the legalities will be easily settled, and you can start earning monthly rents faster than if you had to wait for the paperwork to be done.
Less Competition
Finding foreclosure properties takes more work than regularly listed properties. As a result, most property investors do not bother going after this property.
Additionally, most foreclosed homes are bought at an auction to cash bidders. Since most people cannot completely finance a property purchase, there are relatively fewer people interested in buying foreclosed properties. Financing options are available, but they can be a bit complicated.
Clear Home Title
When you buy an investment property from a private owner, the title is not always clear. For example, it might have unpaid mortgages, liens, or back taxes owed by the old owner. Whereas with a foreclosed property, its title is often clear.
Due to the legal system, the home’s title is always cleaned before sale. Therefore, foreclosure investing leaves you with the property’s condition to worry about.
Conclusion
Buying foreclosure homes can be financially rewarding, but make sure you know the risks involved. Foreclosure investing works best when you buy the property at a discount and sell it at a profit. This strategy takes knowledge, skill, and hard work. If you are only starting, seek advice from reliable property management experts.
Orlando REO Professionals is one of the most trusted property management companies in Florida. Our experienced team of property experts is ready to provide you with top-notch investment property advice, property management services, wealth management services, and more. Contact us at 407-704-6924 or email us at info@o-reo.net to speak with one of our experts today!