A Simple Guide to the Pitfalls of Buying Repossession Properties

Repossession properties offer a great investment opportunity for those who have both the money and time to invest. They provide the promise of a fairly high yield and, if the investor is interested, a monthly income that can continue to grow year after year. But buyer beware: there are potential pitfalls. Make sure you know what they are before you get involved.

In short, the pitfalls involved in repossessed properties fall under the following categories:

  • physical condition of a property
  • location of a property
  • issues with mortgage lenders.

Physical Condition of Properties

The number one thing that scares many investors away from repossession properties is the physical condition those properties might be in. A best-case scenario would involve a home that was well maintained and not damaged when the previous owner moved out. However, best-case scenarios are few and far between.

By definition, homeowners who have been foreclosed upon are also those who likely didn't have the time or money to keep their properties maintained. Banks are usually no better. It's common to find repossessed properties with all sorts of problems, including:

  • Intentional Damage - Just about every residential real estate investor encounters some sort of intentional damage in most foreclosed properties. Damage can be anything from broken windows to stained carpets to holes in the walls.
  • Wear and Tear - If a previous owner did not keep up with maintenance, normal wear and tear issues can be magnified. There are occasions when foreclosed properties need new radiators, boilers, etc.
  • Bank Neglect - When banks drag their heels in disposing of repossession properties, neglect is often the result. Neglected houses are known for mould issues, peeling paint and wallpaper, vandalism, etc.

Location of Properties

It has been said that in real estate location is everything. That is true for the investor. Before an investor can buy repossessed houses with confidence, he or she must understand the neighbourhoods those houses are located in.

Considering neighbourhoods is important for several reasons. First, the location of a property often determines the maximum amount an owner can realistically charge in rent. Second, neighbourhoods do affect real estate values down the road. Third, certain neighbourhoods attract certain types of tenants. All of these things can cause problems for the investor.

Issues with Mortgage Lenders

Rest assured that mortgage lenders dealing with repossession properties are interested in only one thing: getting properties off the books. They will not be interested in making sure the investor gets a good deal or is treated properly. As such, investors need to have a "business only" attitude.

Mortgage lenders are also notorious for poor record keeping. It behoves the investor to retain legal representation with a firm experienced in repossession properties. The last thing that the investor needs is to wind up in litigation trying to settle a purchase transaction.

Although there are pitfalls to investing in residential real estate, we hope we haven't discouraged you from considering it. Buying foreclosed homes and turning them into rental properties is one of the best ways to develop a strong investment portfolio for the future. Fruitful Property Investment is here to help you establish that portfolio.

We have a reputation for providing our clients only the best properties capable of creating immediate equity and providing a high yield. Our customers are so satisfied that 7 out of 10 have bought multiple properties through our agency. We invite you to put us to the test. When you contact Fruitful Property, you will experience a relationship based on integrity, trust, and a genuine commitment to you.

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Jonathan Caplan

by Jonathan Caplan - Property developer, investor and Fruitful founding Director.

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