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Are Foreclosed Homes a Good Option for Rental Properties?

White Tualatin House with Foreclosure Sign in YardOne of the key reasons that people hesitate to invest in rental properties is the price of housing. While it is obvious that high property prices can be a burden for many, for several investors, a good choice is to look for reduced-price residential properties. Almost all properties that sell below market value are foreclosed homes. And at first glance, those discount prices might look like a reasonable price. Yet, before you start your property search, it’s essential to carefully weigh both the pros and cons of buying a foreclosed home to make as a Tualatin rental property.

The first and most obvious benefit of procuring a foreclosed property for your potential rental is the price. In many situations, foreclosures can offer investors an assortment of lower-priced residential properties. Foreclosures tend to be priced below market rates because the banks that retain them don’t want to own real estate – they want their money. This causes the banks to be highly motivated to sell. Undeniably, it is critical to understand why foreclosures are often sold at a reduced price because they aren’t usually in good condition. However, if you have the skills or budget to do a bit of fixing up, a foreclosed home may be suitable for you.

The lower cost of foreclosed homes can bring about a second valuable benefit: an outstanding return on your investment. When you buy a property below market value, commonly, 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 increase. Any repairs or improvements that you carry out on 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 great benefits, there are still a few drawbacks to foreclosures that you should keep in mind. Foreclosures are also considered as distressed properties, and not only because the previous owners stopped paying the mortgage. Several times, they stop doing repairs and maintenance on the home, as well. As a result, foreclosed homes are normally in rough shape when they are finally repossessed and sold by the bank. In other circumstances, the homeowners even damage or vandalize the property before leaving, necessitating extensive and costly repairs. Before acquiring a foreclosure, you must understand what you are engaging in 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. Along with you, numerous investors are hunting for that next bargain property. It is not uncommon 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 be demanded to offer a higher down payment or other incentives to catch the bank’s eye, which means you’re expected to have a lot of cash on hand. If you invest in your first rental property or struggling to find good financing, a foreclosed property may not be your preferred place.

So is a foreclosed property a good option for your next Tualatin 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 971-270-2600.

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.