Foreclosed properties can present very beneficial investment opportunities, but just like any venture, they must be thoroughly understood to avoid possible missteps
Along with establishing a business and dealing paper assets, real estate is a proven way to build a significant amount of wealth. Land after all, is a finite resource, and almost always will appreciate in value over time.
Now, while the increases are constant for most properties, it does not always mean that by the time you produce needed real estate capital you are only limited to the options that have increased in price. You actually have the option to buy foreclosed properties, which are sold cheaper and, thus, allowing you to also buy earlier than you planned.
Why Foreclosed Assets?
It is generally known that foreclosed properties are put up for sale at prices significantly lower than their market value because banks do not move these types of assets for profit. As homes incur maintenance costs and other expenses, keeping them can be costly to banks, so they would want to dispose of them in the quickest possible time. This presents a viable investment opportunity for savvy buyers and investors.
However, just like any business venture, foreclosed properties also present a specific set of challenges. For one, foreclosed properties are often advertised as “as is, where is,” a legal term used to denote that the buyer agrees to purchase the property in whatever condition it presently exists. In addition, documentation (such as tax declaration, Transfer Certificate of Title, etc.) often is a concern when one is buying a foreclosed property, as the previous owner might have failed to have this sorted out.
In order to be safe, homebuyers are strongly advised to purchase a foreclosed property from banks, as they fully disclose everything about a property. In addition, banks are also a reputable source of assets and buyers can always get back to them should they have concerns regarding documentation and other requirements. And now with the homebuyer armed with this information, here are a few tips on how savvy homebuyers and investors can turn foreclosed assets into viable investment properties.
1. Buying to Hold
This is a common way of investing on foreclosed properties. Buyers purchase at below market value, let the property appreciate, and sell later on at a significant profit.
However, it takes a great deal of time before a property’s value truly appreciates, if at all. Then, there are also maintenance costs, taxes, and other expenses during the holding period to be taken into consideration.
Buying to hold most ideal if the property is also one you will occupy, rent out, or intend to rehabilitate extensively. If you are unsure you can complete a long holding period, then you are likely better off flipping the property or selling it at wholesale.
2. Flipping the Property
Flipping property has the same end as buying to hold, but without the hold. The foreclosed property is bought with the intent of selling as soon as possible, with just some cosmetic improvements to up its value.
Foreclosed properties are commonly sold “as is,” so make sure to conduct a thorough inspection to ensure the needed repairs/changes do not become too costly. If not, profit can be made by selling at market value.
3. Wholesale
Wholesale selling is when an investor buys foreclosed properties then sells them to other buyers for a smaller profit. It is considered “wholesale” because the primary investor relies on volume instead of appraised or market value to make a profit.
The properties are sold at prices higher than the original price, but still not more than the market value, and are commonly bought by investors who are also engaged in buying to hold, flipping, or rehabbing.
These are just some of the ways one can invest, and, if approached correctly, profit from investing in foreclosed properties. Interested parties who want to explore financial options can look to Metrobank’s and its loan officers to know more about available programs.
Metropolitan Bank and Trust Company is one of the Philippines’ largest commercial banks in terms of total assets, deposits, and total capital. Having been in the financial industry for over half a century, Metrobank is one of a handful of Philippine banks given a stable credit rating outlook by London-based firm Fitch Ratings.
Main photo via IngImage
