Rental property purchase sight unseen?

Question

Newbie question, I finally have found a rental property that looks to cash flow, the owner inherited it but wants nothing to do with it. Perfect, but upon setting up an appointment to see it with my realtor buyer agent, she found out that the tenants, not the owner, do not want any showings. So, they are getting an attorney involved. Red flag?

There are not any pictures of the inside. I have heard of investors getting a property under contract without seeing ti first. I guess the thought is that with inspection contingency, if it is not structurally sound, then you have an out.

My concern, it is a 3 unit, so what if the tenants need new appliances or something that is not covered by the contingency and I have only budgeted for 5% for maintenance and 5% for capital expenditures, will I be getting myself into a financial pit?

Is this a sign that I should run the other way or is it an opportunity to help the seller by offering to purchase with out seeing it, which makes me extremely nervous, particularly since this would be my first ever property purchase?

I truly appreciate any insight.

Jonathan Greene · Answer

First deal, three units, inherited place and tenants, sight unseen is a hard no for you for sure. What if the prior landlord was neglectful and everything needs repair (likely)? What if the tenants rents are so low, never been raised due to negligence, that they are going to do everything they can to squat or keep the low rent? What about the information you have makes it seem like a good deal? You can't see the inside, do you have confirmed rents and proof of payment? Do not take this on as a new investor, there will be plenty of other options in the future you can actually see, inspect, and feel good about.

Jaron Walling · Answer

@Wendy Busa How did you find this property?

Every type of investing comes with risk. If it's your first deal I wouldn't buy sight-unseen. It's too risky for a newer investor. Ask yourself are you stable enough and ready to take the plunge. If the answer is NO then walk away and let the next investor solve some problems and land a good deal. It will happen or is already happening right now. Deals don't go unnoticed in 2021. Sellers can talk to multiple buyers if nothing was signed. Verbal agreements don't hold up.

The tenants have no right to stop a showing for the property. Usually a 24hr notice is all that is needed. Not sure why that's an issue but if you're buying the property with said tenants get ready for a wild ride. That's an aspect you need to consider before making an offer on this property.

John Teachout · Answer

This is not for a new or out of town investor. You would almost certainly be looking at major rehab/repair. You would almost certainly need to replace all the tenants. These two issues could be very costly and it doesn't sound like you would have the necessary cash available to pull it off. While this may be a great opportunity for an experienced investor that's local to the property, I don't think it's a place you should start.

John Morgan · Answer

@Wendy Busa

I bought 3 SFH sight unseen. I got them for a great deal so I assumed they all had issues. They all had tenants and I didn’t see tbe inside of two of them until the day I got the keys at closing. Lol. No regrets! I’m ok with taking risk. But it’s definitely not for everyone. And two of these are my biggest money makers so it was worth the risk. And the other one does ok, but in a really good location with gentrification in its path so it’s more of an appreciation play.

Austin F. · Answer

All 3 tenants refused a showing? Red flag.

Attorney? Red flag.

No pictures? Red flag.

In my state you do not need the tenants permission to enter, but there are laws about entry, harassment, and providing reasonable notice. I would be very surprised if all 3 tenants refused entry, one difficult tenant out of 3 sure, but all 3? Unlikely.

Threatening legal action to keep you out? Sounds like a big scary bluff that will keep a newbie investor from seeing something that would change their mind.

I would educate yourself about entry notice law, and try again. I would wager that there is something in one or all of those units that the owner doesn't want you to see.

Nathan Gesner · Answer

I agree with the others.

The law requires you to give notice of entry; it does not require you to gain permission. Notify them of your intent to inspect in 72 hours. Include your phone number if they would like to communicate and coordinate a different time. If they refuse to negotiate a day/time, go to the property with a key and the current Landlord and conduct the inspection. If you think there's a risk to your physical safety, bring a couple witnesses. If law allows, record your visit to protect yourself from false accusations (sexual harassment, theft, etc.)

Did you receive anything from the Tenant's attorney? 99.9% chance that they told you this verbally and you believed it without any evidence. These are not the kind of people to have an attorney on retainer. It's almost always an empty threat intended to scare off amateurs, and this is an example of how well it works. Again, there is no law preventing the Landlord from inspecting the property.

It's almost guaranteed that these units have deferred maintenance, rents below market, and tenants that were never screened and are problematic. The Seller "wants nothing to do with it" because it's a bad situation. He's selling you his problem and you're willing to buy it because it "looks to cash flow". When you're buying a mess like this, covered in red flags, it should have strong cash flow to cover all the work and money you'll pour into it.

Unless you know what you're doing, I recommend you walk away.

Gail K. · Answer

You haven't indicated which state this is in but as a general rule, a 24 hour notice is typically all that is required to view the property whether tenants wanting this to happen or not.

The other option the owner can provide (IF these tenants are only on a month to month lease) is to terminate such with the appropriate notice to the tenants, get them out one way or another and be done with it.

Frankly I'd be more than a little worried about inheriting such tenants.  If someone is so upset about a place they rent that they are getting an attorney involved in this (I'm assuming it's the tenants going the attorney route) heaven help the new owner dealing with this...especially someone just coming into the landlord business.

There are several rentals in my area currently up for sale by the same owner.  All are small 1 bedroom, 1 bath houses; run down and likely needing quite a bit of work.  The owner themselves are refusing to show these houses until an offer is made on them (contingent, of course, in being able to withdraw after a walk through).  They've now been on the market for quite a while, likely because of this stipulation.

Wendy Busa · Answer

Thanks for all the great advice.

Jon Kelly · Answer

@Wendy Busa the price has to be adjusted to account for the unknown. If the price is low enough then you can take the risk. Do not buy this at market price expecting things to be OK.

It seems like the owner is in a position to offer a discount due to: they inherited this property, they want nothing to do with it and the tenants are making it more difficult to sell

Tim Hall · Answer

@Wendy Busa hi there, I’ve bought properties site unseen before and don’t have a problem with it. The way to do it is to have very low expectations. If you can’t see it, expect the worse. Everything will need to be replaced. Make a list of all of the utilities and minus these ‘repairs’ off the offer price.  What price would make you comfortable buying this place and go for it. You can see it from the outside, so you can tell how well the place is kept from the outside. If there’s lots of junk on the outside 9 times out of 10 the place will be a mess on the inside. However what can you really tell from a walkthrough, everything is behind drywall anyway. Also has the landlord pulled any permits for updates to roof a/c heat, utilities. The one thing that I would be wary of is the tenants getting an attorney to stop you from coming in. What if you need to make repairs if and when you buy it. Are they going to run to the attorneys when you want to perform maintenance on your units. It’s a quick way to turn these places into slums. So in this respect I’d also negotiate to have the property served to you vacant or a deep discount would have to be given for me to take on these headaches. At this point it’s all negotiating, nothing is in writing. If you want to be in the business long term then use this as an exercise, after all it’s where you make your money so you’ve got to be good at it.

Rental property purchase sight unseen?

Most Popular Reply