Jay Reding

Investment Property: The Positives and Negatives of Purchasing Foreclosure Homes

Investing in real estate is a good financial plan.  Even with the market downturns, real estate is one of the safest places for your money. The market always recovers and over the long term, at a minimum, your investment increases.  But, what if you want to make a profit on your investment faster?  There are several ways to do so and one is in purchasing a home in foreclosure.  

The positive to purchasing a foreclosure home is the below market price an investor can pay. Many times, the purchase price can be substantially lower than the market value of the home.  The buyer can make a profit immediately on his/her investment property.  When you purchase a new car, it looses value as soon as it is driven off the lot.  Investing in a foreclosure home has the opposite return on your money.   

With little or no work, the property can be flipped at market price thereby giving the investor an immediate profit.  If the investor wishes to hold on to the home as an investment property for rent, the gap between the purchase price paid for the house and the home’s actual market value will increase even more over time.  Either way, you have made a smart choice. 

The investor should be aware of the downsides to foreclosure homes so he/she can avoid those types of situations. The most important is to ensure there are no other mortgages or liens on the property.  Often, if a borrower can not afford to pay his/her mortgage, they may have other unfulfilled contracts as well.  If they took out a second mortgage, that company will have to release the property before it can be purchased by another party.  Similarly, if a contractor performed work on the house and wasn’t paid in full, they can place a lien on the property which can prohibit the new buyer from possessing the property’s title.  A title search should be done so the new investor has the knowledge he/she needs to determine whether this particular foreclosure home is the best choice. 

Understanding the local market is key in purchasing any home but also in forecasting your potential profit after the investment in a foreclosure.  If the original borrower had little equity in a property and the property’s value was originally inflated, the bank is probably owed more than the actual value of the home. In this case, the bank may try to get more for the property than they would otherwise. As an investor you are looking for a good deal in a foreclosure.  Not to pay a bank that made a poor lending choice.   

Investing in a foreclosure home is a strategic move.  Your profit margin can be substantially larger than a typical home purchase.  As long as the investor is aware of the home’s circumstances and the local market, a foreclosure home can add significant value to your investment portfolio.   

Let us know what you think. J 

InvestmentPropertyMadeEasy.com

Article Tags: Foreclosure Homes, Foreclosure Home

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