If you’re like most people, you love finding good deals. Unfortunately, many of us take advantage of a good deal only to find out later on that it really wasn’t worth the money. It works the same in real estate.
Foreclosed homes often sell for much less than other homes, making them seem like a great deal. Often, however, these homes have major issues that cost way more to fix than the money you save by pouncing on a “good deal.” So, if you’re thinking of purchasing a foreclosure to use as a rental property, keep the following four things in mind.
Important Considerations when Buying a Foreclosure to Use as a Rental
1. Don’t Buy Sight Unseen
Sometimes the “fear of missing out” (FOMO) can make you feel like you need to buy right now – sight unseen. The idea that someone else might come along and snap that property out from under you is just too persuasive. Unfortunately, buying property sight unseen can leave you with buyer’s remorse later when it turns out to be a money pit you can’t afford.
Always take the time, even if you have to travel, to see the property you intend to buy. At the same time, be sure to check out the neighborhood, too, as this can tell you what kind of tenants and how much rent you can expect.
2. How Long Has the Property Stood Vacant?
If you’re considering a property that’s stood vacant for a long period of time, there could be major problems that will fall on you to deal with once you own it. For example, decay continues, plumbing dries up, roofs leak, mold grows, and vandalism can be an issue.
Always get an inspection done before buying any home, but especially on one that’s been abandoned or vacant for a long time.
3. Have a Team of Contractors at the Ready
If you’re an experienced real estate investor, it’s likely you already have a team of trusted professionals you turn to when you need things maintained or repaired on your investment properties. This is especially important if you plan to buy a foreclosure because there are almost always repairs that need to be made.
Take a tour of the home with your team of experts to get their opinions of the repairs needed and the cost involved. With their help, you can get a better idea of whether you’re getting a good deal or not.
4. Know the Rules of Buying Foreclosures
Each foreclosure buying program is different, so you need to find out what the rules are for buying a foreclosure where you live. With some programs, an owner cannot rent out the property for up to five years after purchasing a foreclosed property.
Furthermore, if the property already has tenants, you may need to honor their current lease once you become the new owner. If you intend to live in the property yourself, some states require you to give the tenants a 90-day notice of eviction. Other states like Wisconsin, let you evict tenants immediately.
If you’re thinking of buying a foreclosed property to use as a rental, be sure you consider all the points listed above.