As you look for investment properties, the first idea that might pop into your head is, “What about distressed or foreclosed homes?” For many investors, this might be their go-to as they want to flip and sell the home quickly and efficiently. If your goal as a new or seasoned real estate investor is to try your hand at flipping houses, it is time to consider your options.
Distressed and foreclosed properties are just as relevant for real estate investments as other houses, and with the plan to flip them, it is possible to make a great return on them.
What It Means to Invest in a Distressed or Foreclosed Property
A distressed property is one that has become run down by its owners, leaving it in need of repairs, tune-ups, and some TLC. You might find that the owners do not live there full-time anymore or don’t have the capacity to take care of it at all. A distressed home is usually on the brink of foreclosure.
If you look for a foreclosed property, it will be officially owned by the bank, and purchasing the property will be done through an auction. Similar to a distressed home, you will find the home is in rough shape and needs a lot of repairs and upgrades, possibly even more than a distressed home.
When you invest in either of these options, you are taking on a large project. Your investment in the home is not only on the land itself but to make it habitable again. This means repairing roofs, walls, plumbing, and electrical, or even adding amenities such as additional bedrooms, a garage, or a pool.
The Benefits of Investing
There can be many benefits when investing in a distressed or foreclosed home. If you are looking for a significant return on the flip, this might be the route to take.
First, the price that you pay will be significantly under-market. With the state of the home, prices will be much lower than others in the area, and there is room for negotiating regarding a distressed home because of its need for repairs.
Additionally, individuals and banks are looking to sell these properties quickly, allowing the bidding and sales process to be faster than the usual home.
You will also have access to better financing regarding these types of properties. Instead of funding it on your own or through a bank, you can contact a hard money lender, such as KC Investor Funding, to help you flip the property for a large return. A hard money loan can give you money based on what the property will be worth, allowing you to make the desired renovations. These types of loans are also short-term and quicker, so you don’t have a long, drawn-out loan period.
Your ROI will be higher than other types of investments as well. With the lower investment price on a property like this, you are more likely to get a larger profit when it is all finished.
The Things to Look Out For
One of the clear risks of buying a distressed or foreclosed home is that you are buying it as-is. There will be apparent faults with the property, and it is now on you to get them fixed and ready for future inspections. The neglect of the property can become overwhelming to some.
Remember, you are just one of many who know these properties are cheaper than other options. You will have a lot of competition for the homes you are looking at. It can be essential to act fast on the properties that interest you.
When remodeling a home, it can be easy to get carried away with the renovations. However, your main goal is to sell it afterward, and if you do too much, this might become challenging. Look at the properties in the neighborhood and assess their market value to ensure you are not the outlier in the situation. Find the balance between a new home and a sellable one.
You want to be cautious about repairs not listed on the sale, especially if it is a foreclosed home. Additionally, you will want to be aware of any liens and other fees attached to the property without your knowledge.
Here’s What to Know Before Taking the Next Step
As you prepare to take on a new investment, especially one like a distressed or foreclosed home, make sure you have a budget to stick to. Budget out how much you are willing to loan out or invest on your own to ensure you know how much you can put into repairs and renovations before taking on a project. The last thing you want is to bite off more than you can chew and have a run-down home on your hands.
Then, find a hard money lender to help make your real estate investment dreams a reality. Companies such as ours can provide alternative funding solutions to grow your investment projects. Everything from fees to terms is personalized to your situation, so you get the financing you need.
If you have questions or if you want to start on your investment journey, contact the team at KC Investor Funding.