As a real estate investor, you sometimes have the opportunity to snag a piece of property at a great price. The only catch? You have to buy it sight unseen. For some investors, this is a deal-breaker. For others, it’s a risk worth taking because the potential profits can be huge.
Unfortunately, buying sight unseen can also come back to bite you in the you-know-what. You assume certain risks when you invest this way. Below are four risks you should be aware of when buying houses sight unseen.
1. A Tenant-Occupied Property
One of the reasons you may not be able to see a property before buying it is if it’s occupied and the person living there won’t allow you to view the house. When someone already lives in the house, you have to: figure out how to get them out of your house, or honor their lease agreement.
Buying an occupied property sight unseen complicates a simple fix and flip investment because you can’t just simply throw the tenants out. You have to get the occupants to leave voluntarily or you must go through the eviction process. To get a tenant to leave you can: start the eviction process – be aware that evicting tenants makes them angry, and they may trash the house. Pay the occupants to leave – it’s called “cash for keys,” and it’s probably the best way to avoid a long eviction process and keep your house in decent shape at the same time. Rent the house to the occupants – this option makes it difficult to make repairs, and if the tenant is the previous owner who lost the property to foreclosure, it’s not the best solution.
2. Not Knowing If A Property Is Occupied Or Not
Sure, you can drive by the property you’re buying, but looking at the outside gives you little insight into what lies waiting for you inside its walls. Once you take ownership of a property, one of the first tasks is to rekey the locks. This poses a couple of risks. The house may be occupied without you knowing it and rekeying the locks could lock them out. Not knowing if someone lives in the house or not poses a potentially dangerous situation for you.
3. Major Repairs Cut Into Your Bottom Line
Many sight unseen properties are purchased at foreclosure auctions. If you purchase a property at such an auction, you can assume there will be a fair number of repairs necessary to get the property in saleable/livable condition. Sometimes, however, the cost of making these repairs can exceed your expectations and decrease your profit margin drastically. Repairs such as foundation work, furnace replacement, and septic work are extremely expensive and are sometimes deal breakers, but you wouldn’t know of these repairs until after buying the property.
4. Public Records Are Not Accurate
It’s common for public records and the MLS to be inaccurate at times on foreclosure properties. For instance, public records might list a finished basement when in fact, the basement is completely unfinished. It’s also possible for the room count, bathroom count, and other features to be listed incorrectly in public records. When you buy sight unseen, you really just don’t know what to expect until you finally get inside the home.
You can get some really great deals buying sight unseen. It’s in your best interest, however, to never get your hopes up too high because once you see the property, you could realize you’ve bought something that isn’t such a great deal after all. Just be aware of the risks going into a sight unseen purchase so you have a real idea of what you’re getting into.