Purchasing Rental Property

One of the most common requests we get from people calling our real estate office is “Can you help me purchase a ‘Foreclosure Property’ for investment?”   I usually answer that question with a question:  “Why do you think a foreclosure is the best use of your money and time?” After discussing with the client the risks of purchasing an actual foreclosure property – which are substantial – I show them the spreadsheet below. You know which house you would rather own, but you might be surprised which house is the better investment!

Turn-key Property Purchase Price, $120,000, Leased for $1100/month, Appraised for $150,000

Distressed Property Purchase Price, $85,000.  Needs $25,000 remodel.  Vacant.

Purchasing a turn-key rental property from a investment property specialist is wise for many investors.   The process reduces the risks of construction costs running higher than expected and vacancy losses.   It also saves lots of time and aggravation with contractors not showing up.   The process is also a net better return on investment too, see for yourself below.  The example below is a real house that our company purchased at the distressed value and remodeled and then screened and placed the tenant.  It was then sold to a client investor complete with management services.   These services are VERY valuable to the investor client and better for many clients than purchasing distressed properties.

The client who purchased this house is planning to hold for three years. He has only one job – to cash the monthly rent check, mail the mortgage payment, and keep the cash flow! The moral of the story is not to get caught up in the hype of “foreclosure investing” guru speak. Just buy good solid properties that are profitable. The best way to do that is to hire specialized professionals the same way you hire other professional service providers.

As you will see below, the two primary differences in the pro-forma return on investment to the investor are: 1.) the ability to finance the repairs (because they are already complete and build into the price), and; 2.) the time period of 2-4 months of receiving rental income instead of having a vacant property during the construction process and sourcing and placing a tenant.