Buying a property unseen is a risky investment decision. Learn how you can minimise the risk of buying a lemon.
The online world has made it easy for investors to purchase a property sight unseen thanks to the abundance of tools and resources such as Google Maps and street view, virtual tours, suburb profile reports and online real estate listings. But is it smart?
It may be tempting to purchase the property unseen as this will save you the hassle (and money) of travelling to inspect the property yourself.
While everything may look good on paper (or on-screen), not seeing the property for yourself could mean that you could end up with a property that is markedly different from what you expected.
You could wind up with a property that has structural defects or is in a suburb with undesirable services nearby – such as a brothel up the street – which was not displayed in the online ad or photos.
From market research to getting an independent valuation and organising your contracts correctly, you can take steps to lower your risk when investing from afar.
Why you shouldn’t buy a property sight unseen
If you buy a property unseen, you may encounter the following issues:
- Misleading photos. Although real estate agents are not allowed to misrepresent the property, their objective is to achieve the highest possible sale price, so they may represent the property in a more positive light. A wide angle or zoom lens can make a property appear much larger than it actually is.
- Structural faults. The property may have structural issues or faults, such as cracks in the paint or floorboards, which were not portrayed in the ad. If the property has bad ‘bones’ or does not comply with the building code, then this may mean costly repairs and maintenance in the future. These types of issues would normally be identified during the pre-purchase inspections.
- Ambience. It’s hard to get a feel for the ambience of a property and the surrounding area when you’re not physically there. Factors such as traffic noise, a sense of community or the amount of natural sunlight can only be experienced by visiting the property for yourself.
- Failed strategy. While you may have briefly researched the growth drivers of an area, buying a property sight unseen can lead to a failed investment strategy. If you make a rushed decision and fail to inspect the property yourself, you could risk buying in an area with limited capital gain or an oversupply of stock.
How can I minimise my risk if I am buying a property sight unseen?
While it is a risky strategy, there are some ways that you can lower your risk if you want to make a purchase sight unseen.
- Market research. If you undertake exhaustive research into the growth drivers of an area, including supply and demand factors, then this knowledge can help you make an educated decision. You’ll need to identify your buying criteria, such as the amount of rent you expect to receive, your purchase budget, the range of growth you’re seeking, and the type and size of property you’d like to buy. You should go on the council website to see what infrastructure or development projects may shift the market dynamics of the area. You have several online resources at your disposal that can help you understand the market. Suburb profile reports from CoreLogic RP Data, Google Maps, virtual tours and real estate websites provide useful information on an area.
- Independent valuation. Get independent valuations to get an idea of the property value, as this will help you set your rental amount.
- Organise contracts. Most contracts of sale include a cooling-off period, which is normally five business days, depending on the state in which the property is located. The cooling-off period becomes a safeguard when you buy a property sight unseen, as it gives you time to inspect the property and identify any issues that need to be resolved before settlement. You can also negotiate a clause in the contract to protect you, such as ‘subject to the purchaser’s inspection’.
- Consider new properties. If you’re going to buy a property uninspected, opt for new or off-the-plan properties, as they are less likely to have structural damage. In addition, you’ll be covered by builder’s warranty insurance if anything goes wrong.
- Evaluate risk. Your suitability to buy a property sight unseen depends on your risk profile, so you should consider whether you’re comfortable investing from afar and taking on the risks involved.
- Enlist professional help. As your portfolio expands, it may become difficult to inspect the properties you buy, which is why using a buyer’s agent could be useful. You may want to speak with a building inspector and a rental manager, as they can review the layout and positioning of the property as well as its appeal based on its inclusions, location and size.
- Send someone on your behalf. If possible, send someone you trust to inspect the property on your behalf, such as a family member, friend or coworker, for an honest and unbiased opinion of the property.
Why do some investors buy a property sight unseen?
While it’s not advised that you buy a property sight unseen, there are some advantages to pursuing this strategy.
- Eliminates emotion. Buying a property sight unseen can remove the emotion involved in the purchase process, allowing you to concentrate on whether or not the numbers add up. This means you can make a decision based on the figures rather than the aesthetics or ‘feel’ of the property.
- Saves time. If you’re buying interstate, then buying a property sight unseen saves you time and money that you would otherwise spend travelling to inspect the property yourself.