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Are Foreclosed Homes a Good Option for Rental Properties?

White Hudson House with Foreclosure Sign in Yard

Without a doubt, the cost is one of the biggest obstacles for new rental real estate investors who are looking to buy their first rental property. Although, while high property prices can be an obstacle for some, for other investors, the solution is to look for reduced-price residential properties. A lot of properties that sell below market value are foreclosed homes. Even though those discount prices may seem like a good deal. Do note that before you buy one, it’s important to carefully weigh both the pros and cons of purchasing a foreclosed home to use as a Hudson rental property.

Pro: Lower Prices

The first and most evident benefit of buying a foreclosed property to use as a rental is the price. Foreclosures are usually priced below market rates because the banks that hold them don’t want to own real estate – they want the money. This often makes the banks motivated to sell. For sure, it’s also important to recognize why foreclosures are regularly sold at a reduced price. The most common reason is that the properties aren’t always in great condition. Nevertheless, if you have the skills or budget to do a little bit of renovation, a foreclosed home may be perfect for you.

Pro: Higher ROI

The lower cost of foreclosed homes can lead to a second significant benefit: a high return on your investment. When you purchase a property below market value, you have a great amount of available equity in the property. As homes in your area increase in value, your property will appreciate, and your equity will grow. Any repairs or improvements you make to the property will only speed up this process. A good cash flow property is ideal, but real estate investors’ real wealth comes from having properties with an expected resale value far above the original purchase price.

Pro: Flexible Financing

More often than not, the banks holding foreclosed properties are eager to unload them to buyers. Depending on the bank, they may be prepared to extend lower interest rates, closing costs, or other financing incentives to a solid buyer. Of course, this isn’t always the case, and some foreclosed properties are sold on a cash-only basis. For this reason, gather as much information as possible about a property before making an offer.

Con: Expensive Repairs

Along with the benefits, there are also several drawbacks to foreclosures to know about. Foreclosures are often called distressed properties, not just because the previous owners stopped paying the mortgage. They frequently stop doing repairs and maintenance on the home, too. For this reason, foreclosed homes are often located in rough shape when they are finally repossessed and sold by the bank. Sometimes, the homeowners even damage or vandalize the property before leaving, necessitating extensive and costly repairs. Before purchasing a foreclosure, Hudson property managers need to know what they are getting themselves into and have enough money reserved to cover the cost of getting the property ready for rent.

Con: Slow Closing

The foreclosure process can leave a property in a real tangle of legal and financial complications. From liens to title issues and beyond, there are many reasons why acquiring a foreclosed property from a bank often takes longer than a regular sale. For this reason, investors who want to purchase a foreclosed property should be prepared for a lengthy process and many hurdles that will need to be overcome.

Con: Lots of Competition

Another significant drawback of buying a foreclosed property is the amount of competition. Like you, many investors are looking for that next bargain property. It is not uncommon for there to be a lot of competition for the same property. If the competition becomes especially intense, it could delay the purchase process or even drive the property’s price up and out of an affordable price range. You may also need to offer a higher down payment or other incentives to catch the bank’s eye, which means you’ll need a lot of cash. If you are investing in your first rental property or have trouble getting good financing, a foreclosed property may not be your best choice.


So is a foreclosed property a good option for your next Hudson rental? The answer depends on your circumstances. For some investors, a foreclosure could offer a bargain property that will make a great rental. But for others, the difficulties of buying a foreclosure make it a less desirable path to investing. Would you like to know more about ways to locate and purchase rental properties below the market rate? Contact us online or give us a call at 727-279-7779.

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