Foreclosure Strategies: Flipping Or Renting... Which Is Better?

The Positives And Negatives Of Flipping And Renting

Flipping A Foreclosed House.

Pros

• Pre-foreclosed homes and foreclosed homes that have not been sitting empty are typically in decent condition and only need cosmetic work. You can get a high quality home for an affordable price and make a sizable profit.
• Foreclosed homes aften sell quickly, allowing you to start renovation sooner and swiftly get the improved home back on the market to sell.
• You can estimate your profits by calculating 70% of what the house could sell for on the market after renovations and then subtracting the estimated repair costs. This should give you an estimate of the profits you can make from flipping and selling the house, depending on the price you purchase the foreclosed home for. For example, if it is estimated that the home could sell for $200,000 after renovations, 70% of that would be $140,000. If you estimate renovations will cost $20,000, that gives a total of $120,000. This is the maximum amount you should pay for the foreclosed property and anything below this price will be added profit for you. To get an accurate estimate of what the house could sell for with current market values as well as the cost of renovations, make sure to consult with a Realtor®.

Cons

• Foreclosed homes are not always well cared for. Some may have been neglected by the previous owners who knew they would have to foreclose, while other foreclosed houses can sit empty for extended periods and can fall into disrepair. These houses may need structural repairs before cosmetic renovations can begin.
• Flipping a home makes the assumption that the cost of the home and the cost of the renovations will be lower than the selling price of the house. Make sure to research the market and the extent of renovations required.

Renting A Foreclosed House

Pros

• You can typically make good profits by purchasing a home at a good value and renting it out at current market value.
• After paying the initial cost for the house and any necessary renovations, you can rent the property out and potentially pay off the mortgage for the home using the rental income. Once the mortgage is paid off, the rent income will become profit.
• When purchasing a home, foreclosed or otherwise, you will need to have it appraised to receive a mortgage. After buying and renovating the home, you can have it reappraised for its new value. If the second appraisal value of the property is more than the original purchase price and renovations, the investor can take out a mortgage for the second appraised value,  pay off the first mortgage, recoup the difference, and then cover the monthly mortgage payments with the rental income.

Cons

• Renting out a foreclosed home is only going to be profitable if that foreclosed property was purchased for a price below market value or if the prices in the rental market are up. You need to balance the current rental market conditions with the purchase price of the foreclosed property to ensure you will be able to make a profit.
• Because you’re holding a property, you are banking on the fact that the market will go up. If the market goes down in several years you won’t make a profit if you choose to sell in a downward market.

When Flipping Or Renting, Consult With A Calgary Realtor®

Whether you flip the foreclosure property or you rent it will be determined by the renovation costs and your personal goals. To find high quality foreclosed properties and to make sure foreclosed Calgary real estate listings are lien-free quality investments, you need a Realtor® experienced with foreclosures in Calgary. Flipping or renting a foreclosure property in Calgary can be a great opportunity so contact the experienced members of the Mel Star team to explore foreclosure listings in Calgary and any caveats the properties may have. To discuss your options with Mel Star, contact us at 1-403-861-9944 or fill out the online contact form. Our knowledgeable Calgary Realtors® hedge the risk associated with purchasing Calgary bank foreclosures by providing an all-inclusive, one-stop-shop concierge service for your real estate needs.

FAQ

Q: Why are foreclosure listings so affordable?
A: The bank wishes to sell the property as fast as they can to recuperate the lost money from the missed mortgage payments by the previous homeowner. This is often why foreclosure properties are listed for low prices to attract buyers.

Q: What is the difference between a foreclosed home and a pre-foreclosure home?
A: A pre-foreclosure home has not yet been foreclosed, but it is going to be. If you are purchasing a pre-foreclosure home, you will be buying it from the homeowner instead of from the bank. These properties can often be very affordable, as the seller has a short time frame to sell the house. Ask one of our Calgary Realtors® about the different options of bank foreclosures versus pre-foreclosure homes for more information and the pros and cons of each.

Q: Can you finance a foreclosure property?
A: Yes, you can. However, banks may find all-cash offers more attractive.