Have you ever watched HGTV’s “Fixer-Upper” with Chip and JoAnna Gaines? What about “Property Brothers” with Jonathan and Drew Scott or “Flip or Flop” with Christina and Tarek El Moussa? Don’t you love what they do to the properties they find?
A lot of times, these shows take a foreclosed home and transform it into an amazing renovation project — and the result is something that we draw inspiration from.
What if your clients could do something similar with their homes? When buying a foreclosed property, your clients can. Purchasing under market value puts them in a position to accumulate equity when improvements or repairs are made.
As long as one understands the foreclosed market process, the pros heavily outweigh the cons. Here are 10 reasons to highly consider buying a foreclosed home.
1. A good deal
The chances are that if the home is an REO property, the bank is looking to get it off their books rather quickly. As a result, they’ll price low in hopes of getting multiple offers.
If you clearly understand the area in which the home is located, it’ll better serve you in advising which deals to pursue and which ones to pass on. In addition, if the bank owns the property, any liens, debts or issues with the title most likely will be cleared.
2. A possible 203K loan
A common stigma with many foreclosures is that there is something mechanically or cosmetically wrong with the property.
Buyers who have never purchased a distressed home before probably don’t know that there’s a chance the home could qualify for a rehabilitation loan package in addition to their primary means of financing the purchase.
This can take a lot of stress out of the equation if there are some major issues with the property as the buyers will have the funds to cover it.
3. Equity accumulation
One of the main reasons to pursue a foreclosure, in addition to getting a home at a good price, is the equity it can accumulate from buying low.
Sometimes it’s just a matter of making repairs, but in other cases, it’s about having patience as the neighborhood continues to develop. Either way, anytime you can buy under market value, you’ve put yourself in a good position to come out on top when you’re ready to sell.
4. A move-in ready home
Although it’s a rarity, it does happen. A house that you just know is going to be trashed on the inside or damaged in some sort of way turns out to be pristine and flawless.
If it’s the one, pursue it! No, it’s not too good to be true; yes, there will be other buyers competing for the some property.
5. Early due diligences
One aspect that is nice about foreclosed properties is the amount of time before a bank makes a decision. What would usually have to be coordinated and planned can take place at your earliest convenience as the property is vacant.
Do your inspections if you can. If a structural engineer is recommended, have someone come out as well. The more you know about a house early on before making an offer, the better prepared you’ll be in deciding whether or not to continue with the property.
6. Lower mortgage payments
If you plan on financing the purchase of the home, then this is a given. Buying a house lower than your budget will grant you a lower monthly mortgage payment, and it’s a compelling reason to pursue a foreclosure.
7. Desired neighborhoods
If you had the opportunity to live in your dream neighborhood, would you do it? Distressed properties are everywhere in all ranges of condition and price point. If you see one pop up in a favorite area of yours, jump on it.
8. Possible investment project
In reference to the HGTV shows above, foreclosures are great opportunities when starting an investment project. Whether an income property or rehab project, these homes set you up with the right footing to buy low and sell or rent high.
9. Flexible timeframe
One aspect of purchasing a foreclosure is the uncertainty of when exactly the home will be ready to close. Depending on how severe the case is, it can take months before the property is ready.
Don’t view this as a negative; instead, take advantage of the additional time your clients will have to complete things they need to do before closing.
10. Possibly get a bigger house
Depending on your client’s budget, chances are you know what to expect in terms of the sizes of homes they’ll be able to afford given the areas.
Foreclosures, however, are completely different. Your clients might luck out and find a home bigger than what they planned for, which is a definite plus.
11. Experience with the foreclosure market
Maybe one of the least-considered benefits of the whole process is how it works. This is highly valuable to your clients moving forward because they will be better prepared to pursue future opportunities in this niche marketplace. As the saying goes: there’s a first time for everything.
If your clients are on the fence about stepping into the world of foreclosed properties, showing them the different benefits might provide the boost they need to take the leap.
Anthony West is a real estate agent, the founder of The Luxury Life KCatMoffitt Realty, and an entrepreneur in Kansas City.