Real estate is a great start for first-time investors. However, one of the biggest challenges is generating the capital for a portfolio.
You can apply for loans, borrow from family, or save money from your job to finance that first purchase.
There's also another way to cut costs when you're just starting.
Investing in foreclosures costs less upfront, but are distressed properties right for you?
Here are a few things to consider moving forward.
Potential For House Flipping
If you're interested in house flipping, look into the potential of buying (and selling) distressed homes quickly. This method entails a low upfront cost; however, you'll need to invest in necessary repairs and upgrades if you want to sell the property for a profit.
Other factors matter in this strategy, as well, including the location of the house and surrounding property values. Buying a distressed property in an up-and-coming neighborhood has a higher potential resale value than other foreclosed properties.
If you want to build your portfolio quickly, there are loans designed just for house flippers. Some properties may also be sold in "as is" condition, depending on the condition.
Property Management Solutions
If you're thinking about renovating and selling foreclosed homes, you'll need a property management expert to oversee operations. Turning a distressed home into a rental property is an excellent idea if you want to generate passive income from your property. Consider this idea when buying properties in desirable locations like college neighborhoods.
Property managers handle every aspect, from maintenance to real estate marketing. They visit properties daily to ensure their safety and security. You can also expect prompt communication, complete with metrics, rental inquiries, and tips for success.
A full-service option is worth the investment if you want to rent or sell properties as quickly as possible. Distressed homes, in particular, require quite a bit of renovation.
When you break down the costs, you're likely to save more money by working with a full-service management company instead of outsourcing to multiple services. Property managers have access to a nationwide network of local vendors like HVAC installers, house painters, and landscapers. They also follow strict protocols to ensure that only the best applicants move into your properties.
When Not to Invest In Foreclosures
There are risks you want to avoid with this strategy.
If the property's condition is too expensive to repair, reconsider the purchase. Reconsider if the area isn't expected to see decent appreciation rates. You still want to make a profit.
Assess the location. If the property is located in an undesirable area, you won't be able to increase the listing price. The home may also languish away on real estate sites for much longer, generating even more expenses in property taxes and marketing.
Think About the Advantages Of Distressed Properties
There are many pluses to investing in foreclosures, but the strategy comes with its own set of risks. Consider the pros and cons when deciding your next steps.
Remember to hire a property manager as soon as you make a decision.
PMI Professionals has a team of experts waiting to build your portfolio. Learn more about our process or book a consultation to discuss further.
