The Exception to the Rule: How Buying a Foreclosure Makes Financial Sense Over Renting
Looking for a new home always has its complications. In the current real estate market, high property values and the significant upfront costs of buying a home can make renting seem like a better financial choice. On the other hand, there is also a desire for homeownership and the long term stability and equity that come with it. Do you take the plunge into homeownership and the larger financial obligations that come with it? Or do you choose the way of the renter, and keep the option to move on to a new living situation if your circumstances change in the short term?
Renting certainly has its advantages, such as:
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Lower initial costs
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Having greater flexibility to change with your circumstances
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No maintenance responsibilities
While renting has its advantages, the stability and potential for long-term financial gain that comes with owning a home is not to be ignored. Rent payments build no equity, and you receive no return on your investment. Wouldn’t it be great to know that you are building equity for your future rather than paying rent which could go up every year - If only you could find the right deal! This is where foreclosures enter the picture as a potential game-changer. Buying a foreclosure can provide a path to homeownership that is both more affordable and financially savvy in the long run.
Foreclosures, are properties that have been repossessed by a bank / mortgage company when the current owner defaults on their mortgage. Banks are often motivated to sell these properties quickly, and below market value depending on what was still owed on the mortgage. This is one of the reasons that foreclosures are such an attractive option for people who want to own a home, but can’t afford the high costs that come with a traditional home sale.
Benefits of a buying a foreclosure include:
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Buying from a motivated seller
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Properties can be available for below market value
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Building equity faster in the home
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Better long term investment than renting
There are many financial advantages of buying a foreclosure property. It’s important to understand that banks are typically only looking to get back whatever they were still owed on a property when it went into foreclosure. The more that was paid off on the loan prior to foreclosure, the less the bank is trying to get for the property. This can allow you to get more house for your money, since banks are often selling foreclosures below market value. Foreclosures also often need repairs, but these can be done on your own schedule. This can allow you to personalize your home, without the major expense of new construction or extensive renovations all at once. Additionally, foreclosures can offer a greater potential for appreciation. If you paid below market value, then you already have equity built up from the start. As the market goes up and values rise, so does your equity. These long term benefits really showcase how buying a foreclosure can set up your long term financial health, rather than renting.
Buying a foreclosure does have its challenges. Properties might need repairs, and the purchase itself can be complex if you try it on your own. However, if you enlist the aid of a real estate agent that specializes in foreclosures, they can help you navigate these obstacles. Expert advice, thorough research, and property inspections can help you avoid any pitfalls in the buying process. Buying a foreclosure should be undertaken with the same due diligence and forethought as any other major financial decision.
Renting may seem like the cheaper option in the short term, but foreclosures offer the satisfaction of owning a home as well as long term financial gain. They can provide a lower cost path to homeownership for those who might not be able to afford the full price of the traditional market. Foreclosures can help you get out of the rental market, and start building wealth through homeownership. Start searching for foreclosure properties in your area or consult with a real estate professional to learn more about transitioning from renting to owning.
Always take an organized approach to help simplify the process of buying a foreclosure property, use the free downloadable checklist:
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