About 21,000 American properties can face foreclosure in a single month. Because both homes and commercial buildings get seized and re-sold, California investors can profit from foreclosures that they purchase.
Here, we'll talk about why a foreclosure investment is one of the best ways to make money in the real estate market. Read on to learn some benefits of using foreclosed properties in your investment strategies.
Low Upfront Costs
When a lender forecloses a property, they're motivated to sell it as quickly as possible. They want to recoup their financial losses from the loan that the owner didn't pay back.
This means that they sell it at a lower upfront price than properties that aren't distressed. Usually, this price is about 20% lower than the sale value. So, a house worth $400,000 may sell for $320,000.
Fast Sales
Because lenders want their money back ASAP, they're more likely to sell foreclosed properties quickly. They're often sold at real estate auctions, so buying foreclosures can be quick and seamless.
This means buyers can acquire their foreclosure investment more quickly than they would a traditional investment. You can start getting passive rental income ASAP if making money as a landlord is your goal. You can also flip the property for a high profit within just a couple of months.
Property auctions also mean that investors won't need to perform lengthy negotiations before acquiring a property. All they need to do is make the highest bid at the auction. It's easy to feel confident in these decisions since investors can appraise foreclosure properties at open houses and ask property managers questions about their potential for return.
Higher Return
Those who rent out foreclosed properties make more money because they can charge rent based on the sale value.
The $400,000 house that an investor spent $320,000 on will keep $400,000 on the base price for rent calculation. If you're charging a yearly rent of 5% of the sale price, you'll get $20,000 rather than $16,000. It doesn't matter that you saved $80,000 on the upfront cost!
Foreclosures are also great for those who want to flip houses. You buy the house for the discounted $320,000 to put money in the lender's pocket. Then, you sell it for $400,000 and turn an $80,000 profit.
If you fix up the property a bit, you may be able to add amenities that boost its value. Consider:
- Installing outdoor lighting
- Replacing fencing
- Renovating outdoor living spaces
- Patching up holes in walls
- Re-painting the property's interior
You'll also have time to increase its curb appeal and get a higher estimate of the property's value. This means an even higher profit when you choose to stage and sell!
Invest in Foreclosures ASAP
Now that you know some reasons to buy foreclosures when diversifying your portfolio, it's time to identify opportunities for purchasing distressed properties in California.
PMI Contra Costa is excited to tell you how much you can profit from newly-acquired investments. We use a wide range of property management tools to look at your property's features and provide an accurate assessment of its potential rental income.
Book a free rental analysis to learn more about your new property's worth!
