Blog

Buying a House Sight Unseen? Avoid These 8 Mistakes

By

From grocery shopping to home buying, it seems like almost everything can be done completely online now. The idea of buying a house without seeing it is less daunting these days with all the new technologies and ways to buy a home virtually, and it’s becoming more common. In fact, 20% of homebuyers recently made an offer sight unseen, meaning they made an offer on a home without ever seeing it in person.

Maybe you’re currently living in a condo in Chicago, but have to relocate and move to Dallas, Texas for work. Or, maybe your family is growing and you’re in a time-crunch to move into a bigger house with a yard. Whatever the reason may be, you’re likely going to be buying a home in the near future without seeing it first in person. And while it may seem risky, don’t worry. A completely remote homebuying process can still go just as smooth as it would in person, as long as you avoid these common mistakes made when buying a house sight unseen.

1. Using the first real estate agent you meet

While you might be in a time-crunch or just want to make a quick, competitive offer, you should still take the time to find the right real estate agent for you. Since you won’t be seeing the home in person, it’s important you find an agent that you trust, and knows the market and the area you’re buying in like the back of their hand.

Start by reading online reviews of real estate agents in the city you’re looking to buy, and then interview your top picks. Ask a variety of questions to determine if they’ll be a good fit for you, such as asking how many sales they’ve handled in your target neighborhoods.

2. Skipping out on a virtual tour

Seeing is believing, especially when it comes to buying a home. That’s why you shouldn’t make an offer on a home based on just those wonderful listing photos that initially caught your eye. Even if you love what you see, don’t make the mistake of not taking a virtual tour of the listing — photos can only show you so much.

If the listing has a 3D virtual walkthrough tour, you can easily see every nook and cranny of the home as if you were touring it in person. This is a great tool to use as you’re house hunting to help narrow down your top choices. However, to make sure you’re not submitting an offer unaware of the creaky floors or the lingering pet odor, it’s important to schedule a live video-chat tour with your agent. Even though you can’t be there in person, they can. And they’ll be able to answer those questions that listing photos alone cannot.

3. Forgetting to ask things that you’d normally see for yourself

When you’re house hunting in person, you’re able to use all of your senses. You can see the wonderful natural light coming into the living room, you can hear the noisy garage door, and you can smell the pet odors that are still lingering throughout the home. But when you’re buying a house without seeing it, you’re limited to only what is shown digitally.

Before you virtually tour the home with your agent, write out a list of as many questions or concerns you’d normally be able to see or check out for yourself. Be sure to include some of these questions during the video tour:

  • What can you smell in and outside the house? Maybe there’s a paper mill nearby.
  • What can you hear from the house? There could be a hospital close by or train tracks behind the home.
  • Do any appliances or features look outdated? The cabinets might’ve looked brand new because of a fresh coat of paint, but need to be replaced in the near future.
  • What is the internet and cell-phone service like? There could be a few carriers that don’t offer good coverage in that neighborhood.
  • Is there anything that stands out to you as a concern that wasn’t shown in the listing photos or 3D walkthrough?

If you’re moving to a home further out from the city and suburbs, consider asking what the wildlife situation is like or if the nearby river has ever caused flooding. Or, if you’re moving into a bustling downtown area, ask how the traffic is or what the public transportation options are like.

4. Not researching the neighborhood and surrounding area

Whether it’s because they’re excited for the house they’ve found, or they need to relocate as soon as possible, people often forget to look into the neighborhood and its surroundings. For example, the last thing you want is to move your family across Dallas for a great school, and then discover later on that your new house isn’t actually in the school district’s boundaries; or move into a new-construction home without realizing it’s a 5 minute walk from a high-crime area. If you’re moving to a neighborhood you’re already familiar with then this isn’t a big concern. However, for most people buying a house sight unseen, it’s likely that you’re not as familiar with the area.

Do your due diligence and use Google Maps to virtually walk through the neighborhood to see what the surrounding homes look like and what’s nearby. If your agent is up for it, see if they can take you on a video tour around the block. There could be new construction underway or other potential concerns that you aren’t able to see for yourself on Google Maps. Also consider joining online community groups, such as those on Facebook or Nextdoor, to gain local insights into the specific neighborhoods and communities from those actually living there.

5. Not vetting a high-quality home inspector

Whether you’re buying a house sight unseen or not, a home inspection is a crucial step in the homebuying process. It’s even more important to have this extra set of eyes from a professional when you aren’t able to see the home in person. Just as it was important to vet out your real estate agent, the same goes for choosing a home inspector. Don’t make the mistake of just hiring the first one you stumble across online. Be sure you do your research to find a reputable, qualified home inspector in the area of your new home.

6. Forgoing additional inspections

You’ll want to have a general home inspection to cover your grounds and make sure you’re aware of any problems with the home. For most, a general inspection is sufficient. However, depending on the age of the home or if there’s outside structures and features, like a pool, there’s some additional inspections you shouldn’t forgo. For example, if the home was built before 1980 (and in some cases, after that) you should consider having it checked for asbestos. Rather than showing up to your new home with unexpected surprises and issues, take the time to have it thoroughly inspected.

7. Waiving contingencies

If you’re thinking of waiving contingencies in hopes to beat out other buyers and score the home, you should think twice about that decision. If it’s a seller’s market and you want the offer to be competitive and enticing, maybe you can get by with waiving some less risky contingencies like an early move in. However, it can be a huge gamble and mistake to waive higher-risk contingencies, like a home inspection contingency or financing contingency. To protect yourself in an already tricky situation, be wary of waiving certain contingencies.

8. Expecting the process to go according to plan

A common mistake in any homebuying process is expecting it to go exactly as planned. Add in buying a house sight unseen and you’ll likely find yourself navigating the process differently. It’s important to set a realistic timeline with a buffer in case there are any hiccups along the way. For example, there’s a chance that the loan-approval process could take longer than expected or that the needed repairs to the home you made an offer on are going to take a few weeks longer.

Having a realistic expectation and planning for a few bumps along the way will help you feel at ease in case anything does stray away from the plan. Prepare all of your documents well in advance so you have all the needed information for the loan approval process. Confirm if you’re able to have a fully digital closing rather than needing to be there in person, and periodically check in with your agent to see if there’s anything needed on your end to keep the process going smoothly.

LEARN MORE >


Fix and flip quick check list

Quick check list of what to look for in a property you are considering for a fix and flip.

What to look for in a Property when assessing it for a flip.

We asked an experienced Flipper what she looks for in a house that she is considering.  And this was she looks for.

 

Living, family, dining, bed, bath rooms:

How do they look and what can you improve on? Remove walls, upgrades?

Roof:

New or Old?

Kitchen:

Rehab or remodel?

Furnace/AC:

Working or NOT?

Garage:

New doors?

Exterminator:

Termites or Roaches?

Plumbing:

Areas of concern?

Electrical:

New or old?

Driveway:

Cracks or need replacement?

Sidewalk:

Yours, or the Cities?

Exterior Surfaces:

Repainting, plastering, stucco work needed?

 

LEARN MORE >


Determine After Repair Value | ARV

How to do a Financial Analysis of a Home Flip

Comparable Market Sales

Financial analysis of a fix and flip.

Financial analysis of a fix and flip.

  • Pending Sales
  • Active Sales
  • Walk the Neighborhood Local Realtors

Identify Repairs and Improvements Repair

When it comes to renovations you really need to think in terms of the different possibilities.   This is a fun and exciting part of fixing and selling properties.  It’s a chance to use your creativity and you imagination. But then you need to temper all that with the reality of the cost verses the value added to the property.  So consider breaking down your options in to these three categories:

Repairs – “Must”

This are repairs that are causing a safety hazard or that are required by building standards.

Renovations – “Should”

These will be mostly dictated by what is standard and customary.  So if all the other properties in the neighborhood have 3 bedrooms and two bath and your property has 3 bedrooms and 2 baths then you really “should” consider adding a bathroom.

Upgrades – “Could”

This is where your creativity and financial analysis could make or break a deal.  If most of the houses in the area don’t have a pool, and it will cost you a whole lot to put in a pool, but not sure if buyers are going to value it, that’s the “could” that you need to really think on.

Opportunities to Add Value

  • Amenities
  • Openings (Walls)
  • Conversions
  • Additions
  • Layout Changes

Account for Holding Costs

  • Buying costs
  • Holding costs
  • Costs of money
  • Selling costs

Set Minimum Profit

This should be a percentage of your After Repair Value that you set for every flip.

LEARN MORE >


Consumer verses Business Purpose Loans

The purpose of your loan is crucial to the lender.

Loan Purpose is critical to a Hard Money loan? Actually, any loan?

Years ago loan programs were somewhat divided along the lines of owner occupied or non-owner occupied. The Dodd-Frank Wall Street Reform and Consumer Protection Act changed that. Now the Purpose of the loan dictates what loan programs will be available to your Borrower.

“Consumer Purpose” loans are generally defined as loans for personal, family or household purposes. Such loans include, but are not limited to, loans to purchase, remodel, repair or improve a principal residence; purchase a vacation home or personal vehicle or boat; to purchase furniture, furnishings, appliances, or other consumer goods for personal use; to pay, refinance or consolidate personal or family debt or credit cards; or for education expenses, vacations, and medical expenses.

“Business Purpose” loans are used to purchase an investment property or a cash out refinance where the funds are used for any business purpose. The property collateralized can be owner-occupied or non-owner occupied as long as the funds are used for investment/business. Such loans include, but are not limited to, loans to purchase, repair or improve real property for use in the Borrower’s business; to acquire, improve or maintain certain non-owner occupied rental property; to purchase, improve or repair tools, equipment, machinery, fixtures or furnishings used in the Borrower’s business; for operating capital e.g., employee salaries or to purchase or pay for business inventory, supplies, rent, taxes, insurance, and other related expenses; or to payoff, refinance or consolidate business debts.

Please note that the loan can be Consumer Purpose even if the property is a rental or commercial. It is the Purpose that will dictate the Loan Program. For example; Borrower has an existing rental property and needs cash out to consolidate personal debts. That would be deemed a Consumer Purpose loan. Another example is a purchase of a rental property. That one will always be a Business Purpose.

Not all Hard Money lenders will do Consumer Purpose loans so you need to be sure and ask if you know it is Consumer Purpose. We have both Programs.

So in your description of the Loan Scenario please make sure to include the Loan Purpose.

The purpose of your loan is crucial to the lender.

LEARN MORE >


How to Buying a fixer-upper

Fix and Flip Process and Programs

A couple steps to help you with your fix and flip

You keep hearing the term Fix and Flips.   You see it on TV and they make it look so easy.  Is it really?

Obviously, you need to avoid buying a money pit.

Working with professionals will ensure that the improvements you are considering will be worth it in the end to improve the value of the home. You don’t want to over-renovate the home for the area so avoid renovations that just won’t be worth it in the end.

But how do you afford to do a renovation? When you purchase the home you will need sufficient funds for the down payment and closing costs.

It could be difficult to qualify for additional financing when you have just purchased a home and these options can also be expensive.

The great news is that there is an affordable solution – there are insured mortgage programs that will allow you to borrow up to 10 percent of purchase price for improvements to a maximum of $40,000. The property value must be less than $1 million.

Here are the steps that you need to take:

Step One: Get Pre-Approved

Obtain a mortgage pre-approval to determine your maximum approval amount.  There are special programs for Fix and Flip, and Fixer Uppers.  These programs are typically for investors, and not consumers that are looking to occupy the home.  These programs can allow for lower down payments and fund available for the renovations.  But keep in mind rates and fees are typically higher than normal conventional loans.

Step Two: Find the right property

Find a home and have a general idea of what renovations need to be done as well as their cost.

The purchase price plus the renovation cost cannot exceed your maximum approval amount for a mortgage. Lenders will request written quotes to be provided, detailing the work to be done, as well as the cost.

Step Three: Be prepared with Renovation Quotes

Once your offer is accepted, you will need to provide the accepted purchase offer, as well as the quotes for the improvements, to your mortgage broker.

A financing request will be sent to the lender which includes the cost of the renovations.

Step Four: Begin Renovations

Once you take possession of your home, you can begin the renovations. The Lender will instruct the escrow or attorney to hold the additional Renovation funds, until the lender confirms the works has been completed.

Fixing a home can be an exciting adventure.  Make sure you have the right professionals that can assist you with the process.

LEARN MORE >


Fix and Flip Mistakes 10 Ways to Avoid Them

Fix and Flip tips

Buying properties at under-market prices, then undertaking required repairs/upgrades and finally profitably flipping them sounds like a pretty good plan, right? Unfortunately, especially for new players in the Real Estate Investment (REI) world, problems can add up fast if you are not very careful. Profits on paper can turn into real world losses, in a heartbeat, without proper preparation. The single biggest mistake that newbie fix and flippers make is not comprehending or underestimating the cost of rehab work. Also, if you would like to fix and flip while overpaying for the property to start with, you can find yourself in the hole even quicker.

Whether it be an undetected damaged roof, a missed cracked foundation or not checking the (broken) air conditioning system (because you bought the house in the winter time), a whole variety of potentially expensive issues can arise after a property is put under contract or purchased. However, by then it may be too late.

Here are some of the top pitfalls to avoid on the road to fix’n flip real estate riches.

Be prepared for surprises.

While it is true that some properties you fix and flip will really only need cosmetic fixes (paint, minor clean up, etc.) most properties that are out there and can make for a great fix and lip are ones with low prices and are in need of much more work than just “surface” work. For example, reselling the property to a normal retail buyer means it has to pass a formal housing inspection to confirm the entire property is up to current building code requirements.

  • That means you maybe cannot get by with minimum fix-up. What may be required are real repairs that include major issues such as mold or mildew problems, pest infestations, outdated plumbing or electrical that might need upgrading. Any of these things can send your “real” purchase price soaring. Going over budget on the initial purchase price (including all repair and upgrade costs) can leave you with no profit when you go to sell the property.
  • It is instructive if not imperative to start with what the (highest) ceiling price is for the area in which property is located, before bidding on any of them. Next take a very close look at THAT price vs. the price of the property you are considering as a purchase + the anticipated improvement/fixup costs + your anticipated profit; adding up those three factors allows you to ascertain the maximum purchase price you can justify paying.

Work “backwards” from that point to determine expenses, carrying costs and most important, net profit.

  • You should have firmly in your mind what minimum net profit you are looking for, which is a function of the how much you can sell the property for, and still hit your target profit number.
  • Always build in some extra funds for unexpected costs.
  • But,if the numbers don’t work, then walk away from the deal.

Do NOT Skip the inspection.

Assuming you have time, bring in a competent inspector, contractor, experienced handyman and at least do a drive-by of the property and view as much as you can inside and out. When possible, get into the property itself in advance of the offer and take a very good look around, in order to prepare for an efficient fix and flip.

Don’t limit your research to just the property you are acquiring.

  • Be sure to research the neighborhood as well. For example, if your “sure fire” investment property is in a neighborhood in decline, the overall value of the post-rehab property may fall way short of your pre-rehab profit expectations.

Don’t pre-pay contractors or others in full in advance.

Pay them, in installments, when certain pre-determined milestones are met. For any large project, you should create and maintain a detailed “draw schedule”. The contractor collects the draws or “progress payments” when certain phases or parts of the project are finished.

Failure to rent the property out, if the sale takes a long time.

During the months it takes for escrow to close, the rehab to get finished, and the resale to get underway, market conditions can shift. It is better to make a small profit for a few months, while trying to sell the property. Rather than letting it sit there empty, make some profit while you have to make payments to the lender month after month after month.

Avoid 100% DIY (Do It Yourself) Fix and flip projects.

To many REI-ers give themselves credit for skills they may lack. For example, unless you are a licensed realtor, you may not want to try the sell the property yourself. The paperwork alone can drown you in detail. Same goes for trying to do all the repair work yourself. Your time might be better spent on your “core” knowledge areas (flipping houses vs. painting) It is possible to retain a lower cost with high quality talent to accomplish such tasks for you.

Ignore the “70 Percent Rule” at your own risk.

It is a basic, tried and true formula in the REI biz that you should take your ARV (After Repair Value), multiply it by 0.7 and subtract your repair cost estimate. That is the maximum amount you should be paying for a property—no exceptions. This is considered a sacred  rule because it will keep you safe from overspending on rehab and winding up with a property you can’t sell for a profit.

Avoid taking on too big of a fix and flip project on your first deal.

A modest clean up or cosmetic fix up is one thing. But then there are projects that may include flooring, insulation, landscaping, stucco, doors, windows, kitchen cabinets, counter-tops, etc. Not only do such rehabs eat up a lot of money, they take a lot of time to accomplish. When you are using hard money financing, time is literally money. Buying properties that need too much work is a quick way to turn a profit into losses.

Figure out your financing before you jump in.

There are great loan programs for Flippers.  You can get up to 90% loan to value and up to 100% of your covered in a loan.   Always ask if there is a prepayment penalty, and what the draw fees are.  Is there a pre-payment penalty for early payoff.  Button up your financing before you make an offer.  It will reduce the stress of the loan.

Credit to Tod Snodgrass, 

LEARN MORE >