EOTM Press Room

Buying a Foreclosed Home as a Rental Property

In Uncategorized on April 12, 2009 at 1:23 pm

Consider key factors about a foreclosed home before you buy it as a rental property.

Some investors are eager to purchase single-family homes in foreclosure, hoping to take advantage of low prices and then turn a profit by renting the properties to tenants. But many of these buyers are not experienced landlords, and even experienced landlords often fail to consider crucial factors that will make the purchase of a foreclosed home a success or failure as a rental property.

Wise buyers will consider such things as the neighborhood in which the home is located, how the home has been maintained, and whether any existing tenants who rented from the prior owner will remain after the purchase. Here’s a rundown of the things you should consider before you buy a foreclosed property with the intention of renting it out.

Why the Rash of Foreclosures in Some Areas?

A sad fact of sub-prime life is that in many areas of the country, whole neighborhoods are awash in foreclosures. Typically, these areas were hastily built by developers eager to take advantage of the seemingly endless appreciation of real estate, and they all came crashing down when the purchasers (and in some cases, the developers) became unable to meet their mortgages or construction loan payments. For hard numbers on the incidence of foreclosure in your area, use Realty Trac (www.realtytrac.com) to check the concentration of foreclosures by Zip code.

Will You Deal With a Bank or a Homeowner?

Purchasing a foreclosed home may not be the home-buying experience you might imagine. Instead of dealing with motivated individual sellers, anxious to showcase their home by staging it and working closely with their broker, most buyers will encounter an institution — a bank’s asset management department, where it’s hard to reach and converse with an individual, let alone the same individual each time. Don’t expect quick turnaround and individual attention by people who have the authority to make decisions. Instead, you may find yourself dealing with a department that knows banking but not home selling and stops answering the phone at 5 PM sharp.

However, if you are lucky enough to buy a home in preforeclosure (preforeclosure is the period after the homeowner has received a notice of default but still has months before the auction takes place), often you can negotiate a deal with the homeowner instead of the bank.

Consider the Neighborhood

A key factor in the success of your rental is the neighborhood. In general, a rental in an area dotted with foreclosures is likely to command less rent when foreclosed properties remain unsold and, more importantly, unoccupied. These forlorn properties are likely to be unmaintained and are targets for vandalism and even squatters. Few tenants will want to join the ranks in such a neighborhood, and those that do may expect the rent to reflect these negative attributes. When making a bid on such a property, factor in the realistic rent the house can command.

A neighborhood of foreclosed homes bodes ill even if they have been purchased and are in relatively good shape. All of these homes aren’t going to be occupied by the owners — many will be rented out, just as yours will be. That makes for a concentration of rentals — in short, a glut on the market, which will drive prices down. The same property in a different part of town might fetch a higher rent simply because there is less competition.

A foreclosed property in good condition located in a neighborhood with few other foreclosures will most likely fetch higher rent. Of course, such a property may command a higher selling price as well.

Our goal is to educate the consumer on one of the biggest investments you will ever make. Please feel free to contact Carla Barnes of EOTM Properties today for a quick analysis of the market you are looking to buy in, we are here for that investor in YOU!

Carla Barnes

Direct: 678.548.9466

Email: carla@eotmrealestategroup.com

Website: http://www.eotmrealestategroup.com

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