The Risks of Buying Houses Sight Unseen

I have bought many houses without seeing the interior before I closed on the deal. When I first started flipping houses, almost every house we bought was from the foreclosure sale. When you buy houses from the foreclosure sale, you often do not get a chance to see the inside of the house. I have also bought houses that were tenant occupied where I could not see the interior. It can be very risky buying houses this way, but you often get a much better deal when waiving your right to an inspection or even the ability to see all of the house. I recently bought a house that was tenant occupied where I could not see the interior. I figured the house had to be livable since there were tenants in the house; I was wrong! I will go over some of the things that happened with that house and what you can run into when buying houses sight unseen.

What house did I recently buy sight unseen?

I have bought four or five houses in the last two years that I could not see inside of. A couple of those houses were bought from the foreclosure sale, and a couple had tenants. Tenants are supposed to allow access for showings, but often a problem tenant will not grant access. Instead of going through an eviction, the owner decides to sell the house instead. The high-end flip that I made $100,000 on last year was a house that I bought sight unseen.

High-end fix and flip case study.

I also bought a house last year that was a complete mess from the foreclosure sale. Nikki, my project manager, had actually seen part of the interior a few months prior to the foreclosure sale. We had the property under contract as a wholesale deal, but it fell apart. I shot a video of the first time I saw the house below:

The house was trashed, but we still made good money on it after fixing it up.

Another house I bought sight unseen had tenants in the property who would not allow showings. The house was listed for $110,000, which was a killer deal at the time. I drove by the house and decided to buy it knowing I could be getting myself into a bind if it was completely trashed. Nikki likes to joke that I buy the worst houses on Mondays when she is not around to veto them. I made an offer on this house on a Monday when she was not around to veto it. I thought there are people living in the house, so it cannot be that bad! Check out the video below.

The house was destroyed and took $60,000 to fix up. Luckily we will still make money on it, but my profit margin was a little tight for a house that needed so much work. You can see the after video below.

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What are the risks of buying houses sight unseen?

As you can see, you risk a house needing major repairs when you buy sight unseen. The houses I bought looked pretty rough from the outside, so I assumed they needed a lot of work inside as well. When I by houses sight unseen, I assume I will need to remodel most of the interior. Sometimes things are even worse like:

  • The foundation needs work or there is no foundation!
  • Public records list a finished basement when it is unfinished.
  • The room count, bathroom count, or other features are not listed correctly in public records or the MLS.
  • A garage was converted into living space.

Besides the house itself, there are many other issues that can cause problems.

  • If a house is occupied, you have to figure out how to get the occupant out.
  • If there is a tenant in the house, you may have to honor their lease.
  • You may not know if the house is occupied or not. This can cause some stressful situations when you are re-keying the house and hoping no one is waiting for you inside.

How to buy a house from the MLS.

How can you get an occupant out of a house that you bought sight unseen?

Dealing with occupants who want to stay in a house that you want them out of is not fun. I have dealt with many of these situations as an investor and when I was listing foreclosures for banks as well. Many bank foreclosures came with tenants or the previous owner, and it was my job to get them out.

When you buy a house with occupants, you cannot simply kick them out. The law states if they live in the house, you must get them to leave voluntarily or evict them. If there is a lot of valuable property in the house, you cannot simply keep it either. You may have to do a personal property eviction depending on your state laws. There are a few ways to handle a previous owner:

  • Go through an eviction, which can take 15 days to months depending on your state. When you evict someone, they often are not happy with the owner, and they may trash the house in the process.
  • Try to get the occupant to leave on their own. Most people will not simply leave if you ask them to. Some investors try to scare occupants away by lying to them. They may say the police will take all their stuff or they could be arrested. That is not true and not a good way to handle things.
  • You can pay the occupant to leave or offer them cash for keys. Most banks offer cash for keys to avoid evictions and keep their houses in somewhat decent shape. This is usually the best option and might even save money over an eviction.
  • You could also rent the house back to the occupant, but if they just lost their house to foreclosure, that may not be a good idea.

I have paid from $500 to $5,000 for a previous owner to move out. I write up an agreement, and I do not pay them until they have vacated the property. Sometimes I require they clean up the house and take all of their things, and other times I just want them out.

I have offered from $500 to $20,000 for tenants to move out of my houses early so I can start fixing them up. The $20,000 was on the high-end flip when the tenant had a ten-year lease in place. Dealing with tenants can be tricky because if they have a long-term lease, you may have to honor it. The sale of a house does not terminate the lease. Many times offering them money to leave early works great. The tenants on most of the houses I buy do not want to leave because their rent is below market rent and they cannot find a similar place to live for the same amount.

Why renting is riskier than buying.

Conclusion

If you are going to buy houses sight unseen, be very careful! Always assume things are worse than you think they are. There is a reason that a house is being sold without access to the interior, and that reason is usually that there is a problem. You can get great deals on some of these houses, but a lot of risk comes with them as well.

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