A Guide to Buying Foreclosed Properties to Rent Out

What Are Foreclosed Properties?

Whenever the property owner fails to pay or defaults on their mortgage loan, the lender begins the process to recoup the loss by taking possession of the mortgaged property. These properties are known as foreclosed properties. In many cases, the lenders are banks or financial institutions who then put these foreclosed properties on the market for sale. 

If the property does not sell at foreclosure auction for the price necessary to recoup the loss, is it known as a real-estate owned or REO property. REOs are often sold at a discount by banks and other lenders, making them perfect for those interested in investing in properties to rent out.

For a very long time, investing in foreclosed properties and then putting them up for rent has been a common trend. It is a very popular investment strategy in the real estate market that heeds a lot of money. Once the property investors get the foreclosure inspection of the property done to understand the property's condition and ensure there isn't significant damage.

Ever wondered why and how is it a great way to make money? Why do investors buy foreclosed properties? Well, a simple answer to this is -- SAVINGS. 

This article will give you all the details regarding the attraction towards foreclosed properties.

Why Buy A Foreclosure Property?

The main reason why buying a foreclosed property is beneficial is the rate at which you get it. Generally, any foreclosed property is far less than the actual market value. There is a significant difference in the amount. When compared to the non-foreclosed properties or non-distressed properties, these foreclosed properties are sold at 15% less or even more than the actual amount as per the USNews. This is a huge saver.

In other states, the discount is even higher than 15%. Imagine when the entire U.S. is facing soaring rates in property prices, getting a property at a minimum 15% lesser than the market rate.  It is definitely a great deal and also makes it clear why foreclosed properties are preferred by property investors.

What Makes Foreclosures Perfect For Renting?

As we know that the foreclosed properties are available in the market for a discounted rate, we can understand why the investors target these properties. In many cases, the discount rate is as high as 20% to 25%, which is huge. There might be some repairing work that the property would demand which would not cost much either. Now, once the property is good to live in it can be put out on rent. This would heed a lot of money to the lender.

Oceanfront homes that are foreclosed are the best example of great rental properties. Many people living in the cities surrounded by beaches dream of living in beachfront houses, but cannot afford it. For them to rent these foreclosed oceanfront houses would be a great deal. People would easily go for rent and live their dream. Choosing a foreclosed property in an area where the demand on the renter and buyer is high would be a wise decision as the investment would cost less but will give you greater output and profit in the long run.

Understanding Foreclosures

There are various categories in which these foreclosed properties are segregated into. We would discuss the 2 main categories here in this article - Owner and Lenders

By Owners:

The properties that are sold by the owners fall into 2 different categories - Pre-foreclosures and Short Sales.

Pre-foreclosures:

These are the properties which are yet not been taken over by the lenders. This means that the property owners are free to sell their house to anyone at any desired cost. The best part of these pre-foreclosed properties is that the owners would allow the prospective buyers for property inspection from within which would help in estimating the changes required and the cost required for that.

Short Sales:

When the lender agrees to accept the repayment amount from the owners which are generally less than the amount owed by the owner is known as short sales. The owner can sell the property at a lesser value if the lender agrees to it. This will save the owner from becoming a defaulter.

By Lenders:

There are three ways in which you can buy foreclosed properties through a lender. The first is through auction. If the property is not sold during the auction then it goes back to the bank and becomes REO properties.

The second way, these REO properties can be sold by the banks at a lower cost to lessen their loss.

In a third way, if a state-owned institution has sanctioned the home loan, in such cases the foreclosed property goes back to the government. These properties are then sold to the federal agency brokers.

Hope this article has cleared most of your doubts on how renting out foreclosed properties is beneficial. But it is also necessary to understand that the foreclosure laws are different for different states and thus it is important to hire property preservation professionals to get this job done.

SGPNow will assist you in property inspection before buying any foreclosed property.