Though the housing crisis of the late 2000s shocked the American economy, it also created significant opportunities for ambitious investors who didn’t mind getting their hands dirty. And no, we’re not talking about the unscrupulous lenders and Wall Street profiteers whose subprime loans and mortgage-backed securities upended untold thousands of American families’ finances and nearly brought the economy to its knees.
We’re talking about the hardworking folks who buy up foreclosed homes, fix them up, and sell or rent them to deserving individuals and families. In recent years, renting out foreclosed properties has become a profitable enterprise that also happens to exert a powerful positive influence on society by helping renters get back on their feet. If you’re wondering how to fix foreclosed homes or rent out foreclosed properties, read on.
1. Get the Lay of the Land in Your Area
Real estate investing experts encourage prospective foreclosure investors to perform exhaustive research on real estate hotspots before buying foreclosed properties in a particular location — even if they live nearby. That’s because the foreclosure market is subject to unique pressures that don’t affect other real estate segments. Pay particular attention to:
Values for other foreclosed properties in your area (using Zillow and other valuation sites)
How many other investors operate in your area, a figure that could affect your bid for a particular property
The type and condition of foreclosed homes in your area, which could be different from the overall housing stock
Resale values (or rental rates) for fixed-up foreclosures of comparable age and stock
2. Don’t Buy Sight Unseen
At first glance, foreclosure auctions offer the best bang for your buck. Homes typically sell for less at auction than through a licensed agent, regardless of their perceived value. That boosts your profit potential, right?
Not necessarily. Foreclosure auctions come with a major catch: They typically involve onerous restrictions on your ability to inspect and assess prospective purchases, making it all but impossible to accurately assess value. Every year, countless unwitting buyers wind up with “lemons” — homes that appear fine on the outside but have massive problems on the inside.
3. Understand the Investment Required to Fix Up the Home
An extension of the “never buy sight unseen” rule: Always have a rough estimate of how much it’ll cost to make a home attractive to discerning tenants willing to pay top dollar for the right property. Though problems can always pop up during the rehab process, a thorough, inside-out inspection is the best way to narrow your cost range. This allows you to effectively budget for repairs and improvements, an especially important step if you’re making a living out of fixing and renting out foreclosed properties.
4. Choose Your Tenants Wisely
Once your fixed-up foreclosure is ready for the rental market, or even just before, you need to find suitable tenants. Unfortunately, finding suitable tenants can seem nearly as difficult as finding a suitable person to settle down with — because the stakes aren’t much lower. The wrong tenant can damage your property, fail to come up with rent payments, and bring unscrupulous people or activities onto the premises. And while the law allows you to evict scofflaw tenants, clever tenants can make this a very difficult proposition. Professional management is one option, as is using personal connections to find top-quality, long-term residents.