If you are thinking about buying a foreclosed property to rent to tenants, you MUST read this article. There are so many crucial factors that need careful consideration in order for the owner to actually turn a profit on a foreclosed property. There is no denying how bad the real estate market is right now, anyone who has tried to sell a property or pay a mortgage could tell you that. Interest rates are higher than ever, and so are foreclosures. When people think of foreclosures they usually assume the property is in a bad neighborhood, but that is untrue. Foreclosures are everywhere, from low to middle to high class properties. This is why investors are jumping on the opportunity to buy these properties at below market value, but be warned, some of these properties are made to seem like a better deal than they actually are.
What exactly is a foreclosure? A foreclosure is a property that has been repossessed by a bank or lender because the borrower or owner of the property defaulted on the loan payments. In order for the lender to recover the defaulted amount, the home is repossessed and resold on the open market.
Things to Consider:
Has the property been well maintained by previous owner?
This is very important and should take some thorough investigation. Some home owners who lost their property to foreclosure most likely did not have the funds to keep the property well maintained. If an investor buys a foreclosed property without researching the history of the house and the owner, they could end up having to pay thousands of dollars in repairs. There could be electrical damage, broken pipes, roofing leaks, holes in the walls or doors, broken windows, etc. that adds up very quickly.
Was the property used as a rental property in the past?
If the home was a rental before, there are a few extras the investor needs to consider. Rental properties typically have more wear and tear damage that could add to the investor's expenses. The investor might also have to deal with current tenants. Very rarely do situations come up where the previous tenants are still living in the foreclosed property. Tenants have very little rights with regards to protecting their lease when a property goes into foreclosure. Every state enforces different laws, but the majority of the states follow the "first in time, first in right" rule. This law states that if the mortgage was recorded before the lease was signed, the lease becomes obsolete. However, if the rental agreement was signed before the mortgage was recorded, the renter may have a chance of protecting their lease, or at least delaying the eviction process. In the rare case that a tenant is allowed to stay in the foreclosed property, the home buyer could be faced with some serious problems, especially if the tenants are delinquents. For more information on delinquent tenants and evictions, read How to evict a tenant.
Hire a property manager.
Property managers are professionals in property repair and maintenance. Foreclosures typically require a fair amount of work to be done before actually putting the property on the rental market. For most people, this process can be time consuming and draining! Property managers will also find qualified tenants for the property once it is fixed and looking its best. Hiring a property manger could save you a lot of time and money especially when repairing a foreclosure. To read more articles on property management CLICK HERE.
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