Real estate investment is still a popular way to invest your money, but this is only because of the skyrocketing prices of property in general. While no doubt investing in real estate will reap a decent return, there are also a lot of factors that you need to consider before you commit your money to the market. Furthermore, there is another exciting avenue for real estate investors: foreclosed properties. This post will cover some of the reasons why it is such a good idea to make foreclosed properties part of your investment portfolio to make significant short to medium.
What Is Foreclosure?
A foreclosure occurs when a borrower defaults on the mortgage and the lender takes possession of the property. Foreclosure is usually initiated by a lender, who asks courts to force a sale of the mortgaged property to recoup the unpaid debt. If the court approves, foreclosure proceeds with public notice of sale and auction off the property to pay off creditors. If there are not enough bidders at auction, then foreclosure sales can be conducted privately.
While it is undoubtedly a sad thing to happen to the homeowner, it is a fact of life. Most people will find themselves in foreclosure due to unforeseen circumstances such as job loss or anything else that prevents them from repaying their loans. In these cases, they will often search for the best way to sell a house in foreclosure that will net them at least enough to pay off what they owe. This is where savvy investors can come in and capitalize on the low cost.
Why Invest In Property?
Investing in property is a good idea for investors who are looking to generate passive income on their money. The property comes in many forms, such as residential, industrial, and commercial. It also comes with different levels of risk and returns on investment. For example, industrial properties usually offer greater returns than residential properties, but they have a higher risk. Investors should look at the opportunity cost of not investing in property and compare it to the potential returns of investing in property. The decision to invest depends on their life stage and what they want from their investments.
Why Invest In Foreclosed Properties?
Investing in foreclosed properties is a lucrative opportunity for the real estate investor. These properties are often great deals because they can be purchased at a lower price than market value. The most important thing to remember when investing in foreclosed properties is that there are different regulations for every state. Nevertheless, since purchasing a foreclosure property is inexpensive, the mortgage payments are also lower. This can make it easier to repay your loan because the mortgage payments will be less of a burden on your monthly budget.
They Are Depressed In Value
The most obvious reason for investing your money in this type of real estate is its depressed valuations. The idea is to buy low now and ultimately flip for a higher price or rent out to create a revenue stream. The main reason for their low valuation is that when a bank or lender takes possession of the house, they simply want to get it off their books as fast as possible. The only natural way to do this is to sell it below market price. Lenders tend to hate holding onto these things, making it the ideal time to take advantage of the situation.
Borrowing Will Be Less
This point is only pertinent to you if you need to finance your purchase with a loan. If this sounds like you, your loan will be dramatically less than if you buy the house at market value. This means lower monthly payments, lower leverage, and more chance of a quick profit in the medium term.
High Upside Potential
As with any form of investment, this comes with a caveat. The caveat is that it must be in a desirable location near others in similar demographics as your target buyers. While all this sounds complicated, all it really means is that for your investment to turn a profit, the property must be able to sell relatively quickly. If the previous owners could not meet mortgage payments due to a lack of employment in the area, you may find it a challenge to realize the potential. Furthermore, you will need to check its condition as the lower valuation may be eaten up in repair costs and other unforeseen expenses. Nonetheless, if you buy a place somewhere attractive, the upside potential could be enormous, providing you with a healthy return on your investment.
There Are Lots Of Choices
The pandemic, unfortunately, caused another round of evictions and foreclosures because people were laid off from work and unable to make ends meet. This was the case even with the US government’s Federal moratorium. While the foreclosure ban was helpful to keep folks in their homes during the crisis, as it comes to an end, you will find more and more people getting removed from their homes. This creates a situation whereby prices become even further depressed as there are many empty houses on the market. It becomes a buyers market and provides those with the ability to invest, a great opportunity.
They Can Even Out Your Portfolio
Investing is an addictive game to play, especially once you have found some success that you want to replicate. However, this can sometimes lead to a situation where you find yourself asset-rich and cash-poor. This situation can be a perilous time as you see yourself running out of cash to fund your life. However, by getting out a loan to finance the purchase of a well-considered, foreclosed property, you could be able to even things out. If you have done your research and found a winner, you can buy it, fix it and flip it relatively quickly, putting some cashback in your wallet from the profit. However, you should still be careful as if things go wrong, you could entirely over leverage yourself and possibly fall out of the game altogether.
Real estate investment has long been considered one of the best ways to make your money work for you and increase your wealth. However, due to unfortunate circumstances within the past two decades, the number of foreclosed homes has been rising. This presents the savvy investor with an opportunity unlike no other.
