While the real estate market in most areas of the country has stabilized and has even made comebacks in recent years, there still remains a large inventory of foreclosure properties, especially in areas that were hardest hit by the most recent housing market crash. You may think that the time to invest in a foreclosure has past, but that is far from the case.
Unfortunately, there are still areas where property values remain depressed, which means foreclosure rates will be higher. In addition, uncertain financial conditions mean that many homeowners will face foreclosure regardless of an upswing in market value.
Selling a home as a way to avoid foreclosure can mitigate the negative impact of foreclosure on the defaulting homeowner. It can also provide peace of mind and reduced stress, meaning that even in areas of property value upswing, foreclosure opportunities will still be available. Curious about how you can turn a foreclosure into a good financial investment for you and your family? Well then, read on.
Foreclosure As A Primary Residence
For buyers looking to purchase a new home, a foreclosure can be an attractive option, especially if you are strapped for cash and aren’t under any specific time constraints, such as a lease expiration or the sale of your current home. The lender will often be willing to negotiate on a bank-owned foreclosure property. This is because banks don’t like to be in the property owning business.
The overhead for items such as basic maintenance, winterizing a home in colder climates and paying basic utilities can cut into what is most likely an already losing investment for them. Additionally, foreclosures are vacant properties, which run their own risks of vandalism, theft or other unknown hazards that could cut into the pocket book even more deeply for the financial institutions.
If you have some patience, and a little bit of imagination, you may also want to consider a renovation in connection with your foreclosure purchase. There are many improvement loans that can be combined with your mortgage that allow you to make necessary upgrades to basic home systems such as heating, air conditioning, and plumbing. You also may be able to work in a kitchen or bath remodel, meaning that your foreclosure home that may need a little TLC could be customized to your families specific needs.
The ability to do these improvements comes from the fact that you will most likely be buying your home for under market value to begin with. Homeowners considering the ‘buy and renovate’ route should always be cautious about over-improving or making improvements that don’t significantly upgrade the property’s market value.
Foreclosure As An Investment Property
Another area where foreclosures still make lots of sense is with the acquisition of investment property. There is still typically enough equity in a foreclosure to provide room to profit from a quality renovation. Renovations, and purchasing foreclosure properties for that matter, are not to be entered into lightly. There are many areas where first time flippers or investment buyers can run into both legal and monetary hurdles.
If you are considering purchasing a foreclosure, either in a courthouse sale or from the bank to re-sale, you should speak to a real estate lawyer with foreclosure experience first. A knowledgeable lawyer can walk you through the potential pitfalls of your particular transaction and has the insight needed to anticipate problem areas in your deal.
In addition to flipping, foreclosures often present excellent opportunities to acquire property for long term rentals. Rental properties present unique opportunities for the real estate investor in regular monthly income and in tax write-offs. Most regular maintenance and certain other costs of property management can be used to reduce your total amount of tax obligation on both the instant property and in your total portfolio.
Rentals are an increasing area of growth in the real estate market, especially in single or multi-family units that come with yards and include regular upkeep. The younger, millennial, generation is trending towards living situations that require little personal investment or upkeep. Renters are becoming increasingly younger in age and that doesn’t appear to be a trend that will be going away anytime soon.
To Wrap Things Up
Foreclosures continue to be a good investment opportunity, despite the trend towards economic and housing upswings. While the inventory may be lower, individual opportunities will still exist for either a personal home or a potential investment property. While these properties can be attractive purchases, you should consider consulting with a foreclosure expert or attorney before entering into any sales contract. An experienced professional can provide guidance through the sale, rental, or resale process and can give you the knowledge you need to make a wise investment decision on your potential foreclosure transaction.