Real Estate Investment Strategies: Buy Foreclosure for Rental Property

Many people talk about purchasing bank owned real estate as an opportunity to purchase undervalued property to put it on the market at a higher price. However, there is an alternative property investment choice that often goes unnoticed. It’s the rental market.

What do REO properties have to do with rental properties? A lot, actually, according to one San Jose property management company. Let’s focus in on two important points here: Purchase price and rental price.

Foreclosures have an effect on purchase prices

First, and this is important, nearby foreclosures have a big effect on the purchase price of a home, which in turn affects the investment potential of the home. If you are not able to buy a property at below market value, you will have a difficult time establishing a positive cash flow on the property as income property.

Foreclosures have an impact on rental prices

Second, foreclosures have a dramatic effect on the dynamics of the rental market by putting former homeowners into marketplace to create demand for rental properties. When there is a higher number of potential renters competes for a limited number of properties to rent, rents are going to go up or at least remain stable. This can help provide a stable cash flow for the property.

Because of these foreclosure market factors, smart residential property invetors are coming out of the woodwork to participate in the foreclosure market. It’s a fact that very few rental markets nationwide are suffering, and that’s precisely because more people than ever are being forced to rent due to circumstance.

One Colorado Springs property management firm says that rates of vacancy have gone down significantly in 2010 over 2009 rates. This is great news for real estate investors interested in buying Colorado Springs rentals as the real estate market seeks to correct from the peak in 2006.

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