Success Path: 3 Tips for Making Offers on Properties Sight Unseen
We tell so many of our Success Path students that if you stick with the real estate investing business, you’re eventually going to be faced with the opportunity to buy a flip house sight unseen. For a lot of our flips, we go directly to motivated sellers and arrange for short sales or cash sales that take care of the rest of their mortgages, but in some cases the properties we want are only available through foreclosure auctions. When that’s the case, we won’t be allowed inside the house until we’ve already won the auction and paid in full.
When I research a foreclosure property, I always like to get as good a look at it as I can. That way I can have some idea of what it’ll need in the way of rehabs, even if I can’t get inside. But, really, anything could be waiting for me inside, so it’s always a bit of a gamble.
Fortunately, whether you’re bidding on a property at auction or you’re making an offer to a seller whose home you can’t get into, there are a few things you can do to make buying the house sight unseen less of a gamble and more of a calculated risk.
Talk to the Seller
If you can, get in touch with the seller and have a conversation with them about the property. Ask specific questions about it, like how long it’s been since the roof was replaced and if there’s been any damage to it. Ask about routine maintenance and how long it’s been since it was done, as well as any repairs that the property needs. This conversation should give you a decent idea of how much work the house will need to get it back up to market value.
If you have a rough idea of what your rehab costs are going to be, and it looks like it’s still going to be a good deal for you, it’s time to look into what your ARV (after-repair value) is going to be.
Research Nearby Comps
You already know basically how big the house is and where it’s located, so that gives you the information you need to start researching comps in the area. Limit your search to comps to within about a mile of the property, and look at how comparable their lots and locations are to your property, as well. Find out what sellers are asking for these properties, how long they typically sit on the market, and what they’re actually selling for.
Get an In-Person Look at the Property
While you’re doing your research on neighborhood comps, it can’t hurt to swing by your property and at least take a look at it from the outside. If there are tenants still living in it, I don’t recommend creeping around too much, and I definitely don’t recommend breaking the law. However, if the property is vacant, there’s no harm in peeking at it to see for yourself how the roof looks and if it seems like it’s going to need any major rehab work that you might not ordinarily budget for.
From looking at the comps, talking to the seller, and taking a look for yourself, you can get a good idea of how much the house will be worth after you finish with rehabs, as well as how much you can expect to spend on your rehab budget. Use this information and do a little bit of arithmetic to find out if the asking price is good and how high you might be willing to go at auction. Typically, if you stick to the 70% rule (the price you pay for the home plus the cost of rehabs shouldn’t cost more than 70% of the ARV), then you’ll be in good shape and ready for any surprises you find.
For more information about real estate investing, visit Success Path's BiggerPockets blog.