Foreclosed homes and properties are an investment opportunity for those looking to get involved in the real estate business with a more hands-on role. If you’ve seen the glamorized television versions of “house flipping,” then chances are you’re already somewhat familiar with house foreclosures, but the concept and process of investing in one is likely very different than what you’ve seen on TV. Although foreclosures can be an excellent investment for some, it’s certainly not for everyone.
The real estate business is competitive and complex, and foreclosure properties add unique challenges to an already convoluted market. However, with the right help and under the right circumstances, foreclosures are an excellent way to enhance your cash flow and expand your income. In this article, we’ll go over the bare basics of foreclosure properties, including some of the risks involved and how to ensure a successful buying and selling process.
What is a Foreclosure Property?
A foreclosure property typically comes about when the previous property owner can no longer make their loan payments, causing the bank to recover their funds by repossessing the property and re-selling it. The selling process of a foreclosure can be tricky; although they’re often sold at a lower, discounted rate than most homes and properties with higher market value, there can be significant, unforeseen problems with the property—as individuals who struggle to make the monthly payment often aren’t able to afford to keep up with necessary repairs. Buying a foreclosure property can be a gamble, but it can be extremely profitable if you have a good understanding of the market and know what to look for.
Profitability of a Foreclosure
Whether a foreclosure will be profitable or not depends on several factors, as well as your own individual financial situation. Here are a few key things to look out for when getting involved with foreclosures that can spare you the experience, and expense, of a financial black hole:
Not all foreclosures are worth the investment, simply put. When determining the profitability of any given foreclosure property, it’s important to take into consideration the two different prices associated with such homes: the purchase price (the one you spend on) and the eventual market value (when the house re-sells). These two prices will be highly dependent upon several factors, including the real estate market, the repairs the property requires, and the location of the property. If you’re planning on buying a foreclosure to fix it up and re-sell, the market value should be significantly higher than the purchase price, yielding a solid profit margin.
The Buying Process
The process of buying any home or property isn’t simple, and foreclosures are no exception. Many foreclosure investors recommend paying all cash for such properties so that the risks involved are much fewer; paying for something with money you already have puts you in a better position to get out of the deal without becoming financially responsible for years to come. Alternatively, investors can also take out loans to purchase foreclosures, which can be risky if one is not careful. Additionally, buying a foreclosed property at an auction is another risky venture—you might end up paying more for it than originally anticipated, leaving you with a negative profit margin in the end—never a good idea!
Appraisals and Research
Depending on who, or what agency, conducts and processes your foreclosure appraisal, you might end up with a highly profitable foreclosure property sale, mildly profitable, break even, or wind up losing cash. In basic terms, the appraisal process greatly affects the value of the property, and it’s important to conduct your own research to make sure you’re on the right track with your plans for the foreclosure.
Finding Professional Help
Based in Encino, CA and specializing in comprehensive professional real estate investment services since 1987, the experts at Landwin offer investment advice, management, and co-investing for all of our clients. When looking to invest in a foreclosure property, there is no shortage of red tape to wade through, and plenty of difficult decisions to make that can significantly impact your financial future—for good or bad. Foreclosure real estate may seem like a precarious process, and it certainly can be tricky to get through; however, with Landwin’s help, investing in foreclosures might be a good niche for you. If you’d like to learn more about our foreclosure property acquisition and management services, please call one of our helpful representatives today.