How To Turn A Foreclosure Into Rental Income

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Purchasing homes for sale that are in foreclosure is a smart way to invest in properties to rent to tenants. Unfortunately for many families who extended their income beyond its reach, their home is taken back by a bank who was all too happy to lend them the money the first time around. By the point of foreclosure, there is little you, as an investor can do to help these families out – short of paying their mortgage for them.

Turning foreclosed homes for sale into a leasable property is, in a way, helping families like these. Think about it, these families lose their home and a little bit of the lifestyle they were use to. These families may try to look for other homes for sale but getting another mortgage loan is difficult with such a recent foreclosure on their credit reports. By offering rentable homes that are ideal for families, you are giving back a little bit of the lifestyle they had before interest rates and gas prices raised.

Of course, there are some things to consider before purchasing homes for sale in foreclosure. First of all, you will need to tour the home and look out for the following pitfalls of foreclosure homes.

1. Look closely for structural damage. If the owners have not been able to pay a mortgage payment, they probably have not been able to keep up with maintenance of the structure.
2. The small cosmetics can add up. If the home needs new carpet, paint, cabinetry and fixtures due to neglect, those items can add up quickly. Remember, this is an investment that you want to rent out, so you do not necessarily need to replace items with high-end fixtures, cabinets, etc.
3. Check the roof, plumbing, water heater and HVAC unit. These are repairs that a tenant could request within their rights to be fixes. Be proactive and see what kind of shape they are in.
4. Take another tour of the home after the residents have moved out. Foreclosure can be a stressful and emotional time for the former owners. Stress could lead them to damage the property out of spite and you do not want to inherit bleached carpet and broken windows at the last minute.

Since you are looking at homes for sale that you can turn into rent income for yourself, you should also consider how rentable the property is.

1. Is the home within city limits and near local businesses or schools? A home closer to town will likely rent sooner. Anytime tenants are closer to job sources, retailers and attractions, you will have more demand to rent.
2. Is the home friendly to the kind of tenant you want to attract? If you are looking to rent to students, then there should be at least 1 bathroom for every two rooms in the home. If you want to rent to a family, there should probably be a garage and some privacy from other nearby tenants or home owners.
3. What is the average monthly rent for comparable properties in the area? And will that support the payment you will take on by purchasing the foreclosed home?

If turning a foreclosed home into a rentable property is something you are interested in and can financially support, then you have made a sound investment. Even in a downward economy, there will be renters, perhaps even more renters as homeowners are driven out of their home. Buying the home at the extreme discounts sometimes available in foreclosure is another bonus to your investment.

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Disclamer: This entry is intended to promote our partner StorageMart and some or all participants received compensation.