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Should You Buy a Repossessed Property?

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Estimated reading time: 4 minutes, 47 seconds.

A real estate repossession is a process in which a lending institution retrieves a portion of an outstanding mortgage loan after a homeowner has defaulted on the payments. Foreclosing lenders will typically be willing to sell the home at a discount, simply to recover their funds and get the property off the books. For this reason, flippers and other investors looking to build rental portfolios will often begin their search in the repossession market. While it’s possible to make a great deal on a repossessed property, they often come at a greater risk for the investor, and are accompanied by several pitfalls that don’t normally arise when purchasing a home directly from a seller. This article will take you through the following points:

  • The Advantages of Buying a Repossession
  • The Disadvantages of Buying a Repossession
  • How to Find a Repossessed Property
  • Questions to Ask Yourself Before Buying a Repossession

The Advantages of Buying a Repossession 

In the best scenario, buying a repossession can be a highly profitable investment. Motivated vendors increase the bargaining power of investors, usually allowing for the property to be acquired at a price far under market value. If there are savings on the acquisition side and the value of the home appreciates organically over time, your eventual sale will reap high returns.

In the same vein, acquiring the investment below market value will help you make a cash-flow positive investment. Low acquisition costs amount to low monthly carrying costs, helping you break even on a monthly basis if your rental investment remains occupied. Use our Investor’s ROI calculator to find out whether any rental investment is cash flow positive. 

Finally, repossessed properties are usually vacant, allowing for more flexibility with your investment timeline regarding maintenance, marketing, and move-in dates.

The Disdvantages of Buying a Repossession 

The cons of buying a foreclosed property can be many, and for some people these risks outweigh the opportunity for financial gain.

In some cases, repossessed properties have been neglected by their homeowners, and may require significant renovations to make them habitable.  If homeowners did not have the funds to keep up with their mortgage payments, chances are they were not performing regular maintenance on their property either. Repossessions are also sold without legal warranty, meaning that investors forego the rights to seek compensation from the vendors for hidden defects and other issues in the Seller’s Declaration. In fact, investors buying a repossession will not have access to a seller’s declaration at all and will need to rely wholly on their own inspection report.

Furthermore, when buying a repossessed condo you will not receive any of deeds, certificates or declarations of co-ownerships; acquiring all these documents will be at the investor’s own expense.

Competition tends to be higher when it comes to the repossession market, since better deals attract more interest from other investors. In addition to competing with other homebuyers, you’ll be competing with bigger investors who are prepared to make all-cash offers. For this reason, it’s crucial to have a pre-approval and a property alert in place before beginning your hunt for an investment, both of which will give you a competitive edge by allowing you to quickly prepare and submit an offer as soon as a great deal hits the market.

Lastly, finding a mortgage lender for a foreclosed purchase can be complex and might require the use of non-standard loan products. Not all major banks offer mortgages on repossessed properties, so you’ll want to start by identifying which ones do, and under which conditions.

How to Find a Repossessed Property

Step 1: Set up a property alert for repossessions in your preferred neighbourhood. Repossessed homes tend to be listed below market value since they are being sold by the bank, rather than the seller. Note: indicate that you are looking for repossessed properties in the “Additional Criteria” section. 

Step 2: Request a weekly list of Top 10 Repossessed Properties in Montreal.

Step 3: Ask your broker to send you his or her own selection of active repossessions. A manual selection made by a broker will yield more interesting results, as it will take into consideration your specific buying criteria and your needs as an investor. Contact one of our agents here. 

Step 4: Subscribe to a Deal of the Week mailing list. These will contain repossessions amongst other properties listed below market value.

Questions to Ask Yourself Before Buying a Repossession

If you’re still considering buying a repossession, here are some questions you should be asking yourself. If you can answer “yes” to each of these questions, buying a repossession could be a good choice for you.
Will I have a comfortable cushion of savings, even after my downpayment?
While buying a repossession can be a good deal, it will often result in higher additional costs which should not be ignored when budgeting for your investment. Make sure you’re financially prepared for unexpected maintenance costs alongside your upfront purchase fees and your monthly mortgage costs.
Do I have a trustworthy broker on my side? 
Since foreclosures come with higher risks, it’s crucial to have an experienced and reliable broker working to advise you about the financial, legal, and material complexities involved at each stage of the purchase. Alongside a real estate broker, you’ll want to have a reputable inspector and contractor on board to help you determine the extent and expected cost of the renovations needed to get the home market-ready.
Am I prepared for the leg-work?
Buying a property at any stage of the repossession process is not a turn-key process. Ask yourself honestly whether you are prepared for the extra effort and time that it may take for you to make the home presentable to potential tenants.

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