Repossessed Houses – The Pros & Cons

The current economic climate has had a huge effect on the number of house repossessions occurring around the UK. It is estimated that over 600 houses are repossessed by banks and mortgage lenders every month and while this is bad news for the owners, it is good news for buy to let landlords.

There are of course pros and cons associated with the purchase of repossessed houses, but if you choose carefully you can make profits from day one.

The Pros

Repossessed houses can generally be bought for between 30% and 50% less than their estimated market value. The exact price you pay will depend to a large extent on whether you purchase through a property auction or via an estate agent. Auction properties are given a guide price of around 60% of the market value but if there is a lot of competition for the property on auction day you can end up paying considerably more than the guide price. You will still get the property for a good deal less than it is worth though. Repossessed properties sold through an estate agent have an advertised price but again, this is only a guide and you can normally negotiate a slightly better price if you try.

Because repossessed houses are bought for less than their true market value they provide you with instant equity. This means that in reality you could make a few improvements, do a bit of decorating etc. and re-sell the property for a considerable profit within a few months. Alternatively you can rent the property out for a rental cover of 150 to 200% and benefit from on-going profits. Doing it this way you also have the option of using the equity in the property at a later date to finance the purchase of additional buy to let properties.

The Cons

The main drawback associated with repossessed houses is the condition in which you buy them. Some former owners of repossessed houses completely strip the property of all fixtures and fittings when they realise it is going to be repossessed, while others go as far as to strip out the radiators, the boiler, the hot water cylinder and even the bathroom suite. At best you will probably need to spend a few thousand pounds redecorating and modernising some areas of the property, and these costs all come out of your profit margin.

Another factor to consider is that depending on the condition of the property when you buy it, it could take anywhere up to a few months to bring it up to a rentable condition. The mortgage payments during these initial months with no tenants will need to be covered by you.

Of course you can buy repossessed houses that are in a ready-to-rent condition but you’ll inevitably pay more for them. The question you have to ask yourself then is do you want an instant rental income with a slightly smaller profit margin, or are you happy to pay the bills for a few months while improvements are carried out and benefit from better profits in the long run?