Buying a foreclosed home to rent out can make for a very good real estate investment. You can buy these investment properties for below market value but typically, you can rent them out at market rates and generate positive cash flow. However, just like with other real estate properties, location is a key factor for success with foreclosures. So, where are the best places to buy foreclosed homes?
But first…
What Are Foreclosures?
Before we discuss the best places to buy foreclosed homes, we need to take a step back. What exactly are foreclosure homes? In order to answer this question, we need to explain the foreclosure process.
Mortgages are the sole financing method for many real estate deals. In order to secure a mortgage, borrowers must acquire one from a lender. Local and national banks are typical examples of lenders. However, real estate investors may take out loans from other lenders, such as private money lenders.
Naturally, a borrower must pay off the mortgage on a monthly basis. However, if a borrower fails to make 3 consecutive mortgage payments, the bank will issue a Notice of Default. In other words, the pre-foreclosure process will begin. When this happens, the property owner can sell the property through a short sale. Doing this will pay off the outstanding debt and stop the foreclosure process. However, if a sale does not happen within 2 to 3 months, the bank will attempt to sell it at a foreclosure auction. If the property does not sell, the bank will continue with the foreclosure process. Then, the lender takes ownership of the property from the owner. The owner will also have to vacate the property. Finally, the bank will do its best to quickly sell the property. As a result, the foreclosed property will typically be sold below market value, making it a cheap purchase.
Why Should You Be Investing in Foreclosure Homes?
You might have heard that foreclosure rates hit new lows in 2019. So, why even bother with foreclosed properties? Why should you find out what the best places to buy foreclosed homes are? Low foreclosure rates are a healthy sign for any real estate market. Nonetheless, investors can still benefit from existing foreclosures in the best cities to buy foreclosures. Here are some reasons why foreclosure investing can be worth it for real estate investors:
Related: Is Buying Foreclosed Homes a Smart Real Estate Investment?
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Lower Property Prices
As mentioned earlier, foreclosure homes are usually cheaper than non-foreclosed properties. This is due to the properties being sold below market value to ensure a quick sale. For real estate investors, this is an excellent opportunity to save money when buying an investment property. In fact, the average discount when you buy a foreclosure is about 15%.
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Plenty of Financing Options
The general assumption is that foreclosed homes must be bought with cash. But depending on the way an investor goes about buying foreclosed properties, there are actually a few different real estate investment financing options available. If the foreclosure is not a total fixer-upper, you may qualify for a conventional loan. If it is, there are different rehab loans that a real estate investor can qualify for.
And since the investment property is priced below fair market value, buyers will pay lower down payments. Mortgage payments will also be cheaper. Shop around and try to find less expensive closing costs and interest rates.
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High Return on Investment
Above all, the purpose of rental properties is to have a high ROI. By buying a foreclosed home to rent out, high ROI is a surefire outcome. Lower property prices and costs magnify profit made from renting. Any renovations will add to property value and rental income.
Of course, the ROI you generate will depend on the location. So let’s look at the best places to buy foreclosed homes to ensure you land a high return property.
10 Best Places to Buy Foreclosed Homes
So, where are the best places to buy foreclosed homes? According to Mashvisor’s real estate and foreclosure data, these are the best places to buy foreclosed homes in the US housing market:
Little Rock, AR
- Median Property Price: $141,055
- Price per Square Foot: $75
- Price-to-Rent Ratio: 10
- Traditional Rental Income: $1,152
- Traditional Cap Rate / Cash on Cash Return: 3.6%
Glendale, AZ
- Median Property Price: $283,520
- Price per Square Foot: $151
- Price-to-Rent Ratio: 14
- Traditional Rental Income: $1,689
- Traditional Cap Rate / Cash on Cash Return: 3.5%
Baltimore, MD
- Median Property Price: $136,669
- Price per Square Foot: $101
- Price-to-Rent Ratio: 9
- Traditional Rental Income: $1,280
- Traditional Cap Rate / Cash on Cash Return: 3.2%
Philadelphia, PA
- Median Property Price: $196,155
- Price per Square Foot: $129
- Price-to-Rent Ratio: 13
- Traditional Rental Income: $1,708
- Traditional Cap Rate / Cash on Cash Return: 3.0%
Pittsburgh, PA
- Median Property Price: $171,398
- Price per Square Foot: $100
- Price-to-Rent Ratio: 12
- Traditional Rental Income: $1,194
- Traditional Cap Rate / Cash on Cash Return: 2.3%
Columbus, OH
- Median Property Price: $123,602
- Price per Square Foot: $93
- Price-to-Rent Ratio: 10
- Traditional Rental Income: $1,082
- Traditional Cap Rate / Cash on Cash Return: 2.3%
Cincinnati, OH
- Median Property Price: $139,851
- Price per Square Foot: $88
- Price-to-Rent Ratio: 12
- Traditional Rental Income: $1,612
- Traditional Cap Rate / Cash on Cash Return: 2.3%
Mesa, AZ
- Median Property Price: $285,605
- Price per Square Foot: $163
- Price-to-Rent Ratio: 18
- Traditional Rental Income: $1,355
- Traditional Cap Rate / Cash on Cash Return: 2.2%
Miami, FL
- Median Property Price: $321,046
- Price per Square Foot: $192
- Price-to-Rent Ratio: 14
- Traditional Rental Income: $1,919
- Traditional Cap Rate / Cash on Cash Return: 2.2%
San Antonio, TX
- Median Property Price: $191,662
- Price per Square Foot: $107
- Price-to-Rent Ratio: 11
- Traditional Rental Income: $1,443
- Traditional Cap Rate / Cash on Cash Return: 2.2%
Start your search for a foreclosed investment property in the city and neighborhood of your choice.
How to Find Foreclosed Homes for Sale
After reading this blog, you’ll probably want to jump right in and invest in foreclosure properties. However, that begs the question of how to find foreclosures. Fortunately, the answer is quite simple and short. Our 3-word answer is the Mashvisor Property Marketplace.
The Mashvisor Property Marketplace is the ultimate source of foreclosed properties in the US housing market. The marketplace allows investors to easily search for foreclosed property, even those off the MLS. The search is quite comprehensive. You have a selection of vital filters at your disposal such as location, price, property type, and much more. It also provides real estate investors with detailed analytics about each selected property. As a result, you will understand the investment property’s performance in terms of rental income, cash flow, and return on investment. All it takes is a few minutes to find the best foreclosures for sale in the Mashvisor Property Marketplace.
Start your search for foreclosed homes for sale in the Mashvisor Property Marketplace.
Related: How to Analyze Foreclosures for Sale for Investment
All in all, foreclosed homes can make for the best real estate investments. This is especially true in the best places to buy foreclosed homes. To start searching for properties in any of the best places to buy foreclosed homes listed above, CLICK HERE to start a FREE trial with Mashvisor’s tools, such as the Property Marketplace!