Buying a property without personally inspecting it can allow an investor to save resources and pick up exclusive deals – but the strategy comes with several caveats.
Buying site unseen. It’s a term often bandied around amongst property investors – often those who have a multi-property portfolio.
It’s a strategy that invites comparison with a share market floor – fast-paced trading based on an analysis of the numbers, rather than an internal knowledge of the product you are buying.
But property is a physical asset, tangible and, importantly, subject to physical inspection. That’s an important consideration, and many property investors are initially drawn to the asset as a result of its tangibility and accessibility.
Property is bricks and mortar. You don’t have to rely on someone else’s judgement in order to buy it. It doesn’t necessarily call for a particular standard or type of education – it is the everyday person’s asset.
There’s a reason the term ‘mum and dad investor’ carries such resonance; it’s indicative of the accessibility and ease of understanding associated with buying property.
That might work for the first investment property, but what happens when it comes time to add another asset to a finely tuned, multi-property portfolio – one geared for maximum returns?
What are the risks of buying property site unseen?
Should investors forsake the security and comfort associated with physically inspecting a property? Or should they strike whilst the iron is hot, buying on the numbers when the time is right?
This will largely depend on how comfortable you are investing from afar – and what provisions you have put in place to minimise the associated risk.
And there are plenty of risks involved with not inspecting a property yourself. It may be the property has been misrepresented in the photographs provided by the real estate agent and is more run-down or in need of repair than initially thought.
A thorough building inspection may identify repair work that needs doing in the future, or design flaws that might have the potential to severely impact the price you, a future buyer, or a tenant would be willing to pay.
The most recent tenants may not have kept the property in as good a condition as would be expected, or it may simply be that a suburb marketed as ‘up and coming’ is instead stuck in a rut.
All of these factors have the potential to significantly limit the future growth potential of a property, as well as contribute to a significant repair or renovation bill that could set your investment journey back months, or years.
Minimising the risks of buying site unseen
A rushed, miscalculated site unseen investment can turn what should be an enjoyable life decision into a costly mistake.
However, with proper precautions, investing site unseen can maximise the return you receive on your investment dollars, allowing you to expand your portfolio faster or consolidate returns at a quicker pace – as well as allowing for a diverse portfolio better designed to cope with any market fluctuations or changes.
Let’s get this clear, buying property always requires an inspection, but buying site unseen with reduced risk will involve contracting others to do the inspecting for you – and trusting their judgement.
The first step is not to trust the real estate agent or their sales copy. This is not to say that real estate agents are untrustworthy, but instead an acknowledgement they have a vested interest in selling the property for the maximum achievable price in a short period of time.
Instead, you will need to accrue a ‘team’ of expert property contacts who are familiar with the area in which you are buying – be it interstate or overseas.
The value of these contacts is immeasurable, not only during the actual property purchase, but in order to get a feel for the location in which you’re buying.
A buyer’s agent – an accredited agent who works on behalf of the buyer to research the area and property and assist during the negotiation process – may be a worthwhile consideration. Often these agents will have access to a network of trades and agents on the ground who can give a meaningful insight into the true state of the property.
Finding the perfect property
The main reason for buying site unseen is so that you are able to tap into markets with significant potential. So to get started you need to identify an area with good growth drivers.
This will involve consulting property data resources in order to gauge recent price movements in a market, and making judgement calls on where the market currently sits, and how much further it has to go.
Make sure you have a clear set of criteria for your purchase. Include things like how much rent you expect to make, the range of growth you are looking for and the type and size of property you would like to buy.
Investors can research data ranging from rental yields, vacancy rates, median values and market listings.
Peruse the property media to get an idea of what industry commentators think of the current market situation.
Research the demographics of an area by consulting resources such as ABS Census data. This will also give you an understanding of population movements – a critical indication of supply and demand.
Get an idea of where the area may be heading by researching the minutes of local government meetings, looking out for signs of future infrastructure investment.
Also consult recent development approvals to gain an understanding of any new housing stock that may be set to hit the market.
Get an understanding of the local economy, making sure it is diversified enough to cope with any future changes without resulting in a mass wave of unemployment in the region.
Then, when you’ve settled on a property to target, enlist local tradespeople to give the property a thorough inspection. The obligatory pest inspection will provide a useful insight into the property’s state, so make sure you give the report a thorough analysis.
Check out other rental listings in the area in order to establish how your property will, or can be made to, stand out from the crowd and get a tenant sooner.
If the property is tenanted, consult with the current property manager to get an idea of their situation and any future issues that may arise.
If the property is vacant, get in touch with a few property managers in order to get a feel for the local market and how long it may take to lease your property.
Get an independent valuation – or several, if you’re not certain – in order to gain an understanding of any future limitations on the property’s value.
Most property contracts will included a ‘cooling-off period’. If you’ve purchased site unseen you can use this period to go and inspect the property and highlight any issues that need resolving before settlement. You can also attempt to negotiate a condition in the contract that an owner’s inspection will be required in order for the sale to proceed.
With the right plan and process, investing in property site unseen can be a relatively safe experience that can accelerate your property investment journey and allow you to tap into greater future returns.