Do Foreclosures Make Good Rental Real Estate?

Do Foreclosures Make Good Rental Real Estate?

Even in an economic downturn, people are trying to make a living in the real estate market. “Flipping” houses used to be a great way to make a little cash, but not now. Many are now looking at long-term cash prospects, such as renting property, and foreclosures seem to be a good start. But are they? Let’s take a look.

Finding a good rental property isn’t easy. It’s not like shopping; you can’t go into a real estate store and grab the first house off the rack that looks good on you. It’s a process of investigating, gaining knowledge and being realistic. This is especially true when looking at foreclosures. 

Homeowners who suffered foreclosure were unable to pay the mortgage. We all know that.  What people usually don’t think about is that the homeowners were probably also unable to pay for upkeep. This means that you, as the buyer, have a larger possibility of buying a money pit rather than a moneymaker. Keep the following things in mind as you look over a few tips for finding good rental property:

1. Location 📍

Since you’re looking at foreclosed properties rather than properties that are already set up for renting, you can’t check established rental records. However, you can ask your real estate agent for a list of areas with less people moving out and more moving in. As well, look at areas with surrounding retail development. New shopping malls, theaters and restaurants will bring in more people to an area.

2. Addition and subtraction ➕➖

It’s time to do the math. Ask your real estate agent for what the going rental rates are in the area you’re looking at. You’ll need to find out if the rent you can charge will take care of expenses as well as bring you profit. Figure the yearly income you can expect to make and then subtract mortgage payments and operating expenses. If your math produces a negative balance, don't buy the property.

3. Taxes 💰

Once you pay expenses, your income is taxable. Now, while you can depreciate rental property, you can’t depreciate the land it’s on. Talk to a real estate agent or accountant to decide whether it’s worth it or not.

If you follow these three tips and remember to pay attention to the amount of repair needed, you might just find some fantastic deals on foreclosures. Take a little time to make sure renting is for you, and then get started. 

Considering investing in foreclosure properties? 📞 Book a clarity call with me and we’ll explore your options!