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Why You Need an Exit Strategy as a Foreclosure Investor

Sep 9, 2008
Research and planning are the keys to great investment decisions. Having knowledge about your investment is the only way to avoid trouble and when it comes to investing in foreclosed homes you need to have a profit plan. The plan should include exactly how you will finance the property as well as studying market trends. One of the most important factors of being a foreclosure investor, but one which is often overlooked, is that of an exit strategy. An exit strategy protects you if the market suddenly goes bad.

Property rental is generally the most common exit strategy amongst foreclosure investors. Compared with selling a property, renting it can be much more profitable in some circumstances. Incoming rental income can mean long tern wealth rather than a quick profit. The goal of positive cash flow is possible if you do your homework correctly because foreclosed properties should be purchased substantially under market value. The best places to buy foreclosed properties are in high rental areas as this gives you more chance of finding tenants.

Finding foreclosure properties can be a challenge but an experienced real estate agent can assist you with your search and by studying market trends with you. Partnering with a great realtor can mean the difference between success and failure when it comes to buying foreclosed homes. They can give you inside information that is not able to be obtained anywhere else. Because they earn a commission from your purchase, they will do everything they can to find the exact property you are looking for. They also have an insight into the rental market and potential yields.

After seeing a few foreclosed homes you will notice that many are worn and torn and in need of repairs. Make sure you get some repair estimates before proceeding with a purchase. Along with major repairs, undertaking minor improvements can also add value to the home and increase your rental return. Small things such as new a coat of paint and new carpet can increase perceived value dramatically.

A good way to gauge the rental market is by looking at median prices in the suburb or area you are interested in buying at. Median prices that are half the normal average generally indicates there will be no problem renting out the property once you purchase.

Why not mix in another real estate investment strategy to maximize profits? Offer up your foreclosure property on a rent-to-own basis and you will not only benefit from monthly rental income, but if the buyer exercises their right to purchase the house you will also see a sizeable profit at closing. If they choose not to buy the house at the price you've set, well that's good too: you not only get to keep the option money they gave you at the beginning of the lease, but now you get to rent it out again and get another option payment from a new buyer.

Having rental as an exit strategy is the best way to safeguard yourself against any potential losses on the purchase of foreclosed properties.
About the Author
Adem runs the real estate investing site ProfitPiggy.com where you can find detailed examples of the most popular real estate investing methods, real estate investing articles, courses, and more. Visit ProfitPiggy.com now to get started!
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