The Benefits of Investing in a Foreclosure

montgomery-county-md-foreclosure-rental-property-investmentFor many people, investing in a rental property in Montgomery County will be one of the largest, and most stressful, purchasing decisions made to date.

Finding an ideal property on the market, in the right neighborhood, with enough amenities to appeal to prospective tenants, and of course funding the down payment, just scratches the surface of what goes into investing in rental homes.

 

But what if I told you there was a way to ease a bit of your down payment funding stress by reducing the cost of home buying?

 

Oftentimes the word “foreclosure” conjures up negative feelings, especially for those who are looking to purchase a home.  Horror stories of ripped out plumbing and filthy interiors scare even the most frugal of homebuyers from considering a foreclosed home investment.

However, the truth is, investing in a foreclosure offers some wonderful and unique buying opportunities.  Moreover, if you take the proper precautions, you can actually grab a deal on your next investment property and be well on your way to a positive cash flow via your foreclosure investment.

And, once your Montgomery County property manager places a highly qualified tenant in the residence, the money investment will really start paying off.

 

Today we will look at some of the often overlooked benefits of investing in a foreclosure in Montgomery County so that the next time you are in the market to purchase a rental property, you might just consider investing in a foreclosed home.

 

What is a Foreclosure?

What is a Foreclosure?A foreclosure is a legal process in which the lender (typically a bank) attempts to retrieve the balance of a loan they had previously issued to a homeowner who is no longer making payments on their mortgage.  In a foreclosure, the lender can also claim possession of the property since the homeowner, or borrower, is no longer fulfilling their financial obligations.

There are many reasons a homeowner goes into foreclosure on their property:

  • Unexpected job loss
  • Inability to work due to medical conditions
  • Excessive debt and mounting bills
  • Divorce or other family problems
  • Job transfers
  • Market crashes in which the property’s value plummets far below what is owed (also known as an “underwater mortgage”)

 

During a foreclosure, the lender has several options to resolve the issue of non-payment:

  • Revise the payment schedule to make the house more affordable to the homeowner
  • Put the home up for public auction
  • Take legal ownership of the home in hopes of selling it privately

 

In the end, a foreclosure is actually a complicated process that seeks to protect both lenders and homeowners.

The process usually occurs in many distinct stages depending on how the loan was originally structured and what the individual circumstances surrounding the foreclosure are.

In fact, most foreclosures take months to fully resolve and will largely depend on how the borrower decides to react to the initiation of foreclosure proceedings.

 

The Pluses of Montgomery County Foreclosures

Despite the problems some foreclosures create when it comes to purchasing one to add to your rental property portfolio, there are plenty of benefits that you can capitalize on if you do your due diligence before buying.

 

Discounted Price

Foreclosed Homes Typically Have Reduced Prices to Get Rid of PropertyMany times a foreclosure’s sale price will be marked down significantly from other properties in the same neighborhood.

And, since foreclosures are not limited to poor neighborhoods with no nearby amenities, chances are you will be able to find a great rental property in Montgomery County that will have great appeal to potential tenants.  All you have to do is a little research.

In the end, opening up your eyes to foreclosures makes properties that might otherwise be unavailable to you now available, and at a considerable discount.

 

Increased Bargaining Power

In addition to coming in at much lower prices than value market prices, homes that have been in foreclosure for a long period of time are sometimes easier to grab at even lower prices with a little bit of bargaining.

Homes that are in foreclosure hurt lenders—they are not receiving any of the money they agreed to loan to the borrower during a foreclosure and as a result, the lenders suffer financially.  Lenders want to get rid of foreclosed homes quickly so that they can begin receiving money again.

Using this knowledge to your advantage, you may be able to provide a seriously low offer to a lender.  You never know—they might consider your “lowball offer” just to get rid of a property that has been sitting on the market for a long time.

 

Quick Buying Process

Lenders are looking to sell foreclosures as quickly as possible so they can recoup as much lost profit as possible.

This means closing deals tend to happen quickly.

The lender, acting as the seller, will have no reason to back out last minute, making you a proud property owner once the papers are processed.  Then you can hire your trusted Montgomery County property management company and get a tenant placed in the property as soon as possible.

And what does this quick buying process mean for you?

With this faster buying process, monthly rents will start coming in faster than if you purchased a property the traditional way, giving you the financial freedom to potentially invest in additional properties.

 

Lower Down Payment

Typically, lenders will accept lower down payments from investors on foreclosures.  This gives first-time rental property investors a great opportunity to get started in the rental property business with a property that is more valuable, and without having to come up with such a hefty down payment.

One important reason lenders tend to consider lower down payments when trying to sell off a foreclosed property is because investors demand it.  Since foreclosed homes usually have lower interest rates, those investing in them want to have a matching lower down payment requirement as well.

 

Value Building

If you invest in a foreclosure at a significantly lower price than other similar properties in the neighborhood, and the values of those homes increase as a whole, your buyer’s percentage increase will be greater than even your next-door neighbor’s.

In addition, buying a foreclosure “as is” means you have a great opportunity to upgrade and renovate the property as you see fit.  These improvements will skyrocket your property’s value and demand higher monthly rent rates.

Lastly, if you decide to sell down the road, your overall profit will likely be much higher than what you originally paid for the property.

 

In the end, a foreclosed property does not have to be a deal breaker.  There are many reasons why investing in a foreclosure will work to your advantage and make you more money in the future.

If you are looking to purchase a property in Montgomery County, consider the foreclosures available in the neighborhoods that interest you.

Do some thorough research, offer a low deal to the lender, and see what happens.  And, when you have made the deal of the year on a foreclosed property, contact Bay Management Group right away to begin the process of placing a tenant in your new rental.

Experienced staff knowledgeable in advertising vacancies, screening tenants, drafting airtight lease agreements, and managing your property throughout the lease term is just some of what Bay Management Group can offer you.

Ultimately, we offer you the peace of mind that your property and tenants are well taken care of so you can enjoy other important aspects of your life.


2 comments on “The Benefits of Investing in a Foreclosure

  • A friend of mine was thinking about buying a foreclosure, but I wasn’t really sure how you would do that. I really like that you say that they actually have a lower down payment initially. It would be nice for him to save a little bit and still get the house that he wants.

    Reply
    • Bay Management Group says:

      Hi Shad, Thanks for your comment. We’re so glad you found the article helpful! Best of luck to your friend in his purchasing decision.

      Reply

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