Investing blind

[Robbiep]

Hi All,

How many of you have had success with investing blind? By that I mean, buying a property without physically going to the property?

Without much effort, it’s quite easy to get an idea of a market value, comparable sales, achievable rental for a property and you can see if the numbers work for you. If they do, the next step would be to inspect the property.

If you not using estate agents, or prefer to get an independent view from someone who will not be benefitting from the sale / purchase, what would your options be considering alot of properties you buy are subject to a suitable inspection?

Something i thought of would be to contact a letting agency who deals with letting in the area of the property, who is preferably not associated to the agent selling the property. You could ring them up and mention that you are considering buying the property (which needs the inspection done), in return, you will give them the business of managing the property once you take ownership.

That way, the letting agent should do a pretty thorough job of finding faults and work needed, as they are going to be the ones letting the property, they would want to make sure its in the livable condition. They could at the same time give you a rental estimate and perhaps a list of work which might need to be done.

If for whatever reason you don’t buy the property, you could pay the letting agent a few for their time in doing the inspection.

Do you think this method would be acceptable to letting agents and what other methods are there in terms of viewing property in areas not easily accessible to you?

Look forward to hearing from you.

Regards,
Robbie

 

[vaughan]

A heck of a lot of DD can be done with Google Maps, Google Earth and Street View.

 

[Robbiep]

Agreed, but it wont be able to tell you if a house needs repainting inside, new carpets, new boiler, plumbing work or fix a collapsed ceiling?

Not being able to get a thorough inspection inside a property, before you exchange contracts, could cost you dearly when you take ownership.

These costs need to be considered when evaluating a deal.

 

[Jacque]

Hi Robbie

We get clients buying sight unseen often, but that's because they have us as their advocate providing all the necessary research, reports, photos etc. If you are concerned and want someone to check it out on your behalf you could try a BA as an alternative to a PM. Remember that a PM is going to be focused on obtaining your business as a landlord and so may not be all that unbiased.

Obviously a building inspector would be involved as well though you do need to remember that their role is to assess dispassionately by faults, not necessarily commenting on features such as the amount of light in a property, nor the nearby traffic noise from the peak hour commuters over the hill etc etc.

Ideally someone on the ground would be great and if you look up the costs of getting a BA to do this for you (if they are available) you might be pleasantly surprised by the small cost involved here.

Best of luck.

 

[pennyk]

we have bought one property without seeing it. We decided upon a specific town to look in, based on pricing/ rental market etc. this was based on several months of research online etc.
We took a trip to the area to have a look and decide upon specific areas within that town.
then just checked on re.com and rang when properties came up. at the time, the market was very hot, so decisions needed to be made quickly.
In the end, we had a relative who lived nearby who took a quick look at the property (and ended up that he had lived there several years before), and also got pest/ building report.

but if you are wanting more detailed support on the ground, a buyers agent is probably your best bet.... and you need to get the building and pest inspections etc even more for a property you havent seen,

 

[Terryw]

I've purchased over 10 properties that I have never seen. You really do need to be careful though. Getting someone else to look at it for you is good, but they won't have the same concern for it as you would. Building inspections etc are needed, but these won't give you a feel for the street or neighbours etc.

I've never had any problems, but you never know. I remember one of my clients bought a cheap house in tasmania and then no lender would fund it because it was so bad.

 

[Robbiep]

Jacque, as i mentioned in my initial posting (perhaps not clearly), if i come across a property without the assistance of an estate agent or buyers agent, i need to be able to have someone who would be able to be my eyes and ears on the ground with regards to inspecting the property. You mentioned using a buyers agent, but would they really provide me with an inspection service even though I am not their client? The other problem i have is the it is alot easier finding a letting agency in a specific area than a buyers agent. If you sourcing properties all over Australia in remote little towns, how do you easily and quickly find a BA who would do your inspection for you? Out of interest, what sort of fee would they ask for purely doing the inspection?

The reason for using a PM would be purely the ease of finding one in the area of the property and that potentially they would inspect the property for free (if deal goes through, you give them the property to manage). I also feel that if a property is in a shambles, they will highlight all this (as they will be responsible for letting the property out and finding tenants). They will also have the contacts at hand to get relevant quotes and estimates of the cost of work to be done.

Terry, building inspections are done a part of the sales / purchase price right? If they inspection comes back as ‘unsatisfactory’, the buyer is still able to pull out the deal based on the outcome of the inspection right (if specified in the offer to purchase) as it is done before contracts are exchanged? Is a building inspection something that is arranged and paid for by the buyer?

 

[Ed Barton]

Jacque, as i mentioned in my initial posting (perhaps not clearly), if i come across a property without the assistance of an estate agent or buyers agent, i need to be able to have someone who would be able to be my eyes and ears on the ground with regards to inspecting the property. You mentioned using a buyers agent, but would they really provide me with an inspection service even though I am not their client? The other problem i have is the it is alot easier finding a letting agency in a specific area than a buyers agent. If you sourcing properties all over Australia in remote little towns, how do you easily and quickly find a BA who would do your inspection for you? Out of interest, what sort of fee would they ask for purely doing the inspection?

The reason for using a PM would be purely the ease of finding one in the area of the property and that potentially they would inspect the property for free (if deal goes through, you give them the property to manage). I also feel that if a property is in a shambles, they will highlight all this (as they will be responsible for letting the property out and finding tenants). They will also have the contacts at hand to get relevant quotes and estimates of the cost of work to be done.

Terry, building inspections are done a part of the sales / purchase price right? If they inspection comes back as ‘unsatisfactory’, the buyer is still able to pull out the deal based on the outcome of the inspection right (if specified in the offer to purchase) as it is done before contracts are exchanged? Is a building inspection something that is arranged and paid for by the buyer?

given the ignorance (i don't mean that as insult) you are showing in the post, and presuming this is your first IP that you want to buy site unseen i think you should get a buyers agent.

buyer arranges and pays for building and pest inspection. if contracts have not been exchanged then yes the buyer can pull out at any time, just as the seller can.

different things are commonly accepted in different states. in QLD it's commonly accepted that the contract is exchanged subject to a B&P inspection by a certain date. the contract is binding on the seller but the buyer can pull out if the inspection is unsatisfactory.

 

[Robbiep]

Ed, thanks for the advice, but i currently own a portfolio of 30 properties back in South Africa. Out of the 30 properties i own, i have only physically been to 2 of them. The other 28 were bought without ever going to them. If the properties were below market value, positive cashflow (i.e the numbers worked) i bought.

Of the 30 properties I own, they were all sourced myself. I never used an agent and i never used a buyers agent.

The process i had in place for buying blind was what i mentioned above i.e. getting letting agents to do the ground work.

In terms of appearing ignorant on the process, i have only been living in Australia for 9 months, which is why im asking so many questions about how things work etc. As you know, things here work very different from state to state, and even more different between countries. i,e South Africa and Australia

 

[Terryw]

Its up to the buyer to get their own inspections if they wish - don't have to, but would be a good idea, especially if you are not going to see the property yourself. They would generally be done before exchange, although you could have a special condition as part of the contract. If you pull out then you would lose the money you have spent, so it should only do it as a last resort once you are pretty sure.

Buyers agents wouldn't provide free inspections I imagine! If you are not paying for their services they wouldn't act for you. Not sure how far they could go with doing an inspection actually. They would generally find a house that meets someone's requirements, broadly, and then it would be up to the buyer to do their own due diligence. Fees are around the 2% mark.

Not sure how keen the PMs would be to inspect a property either,

 

[Robbiep]

Thanks Terry..

I'm sure of you had a gentlemans agreements with a PM that you will hand them the long term business of managing this property (8% rental) as well as any other properties which u buy in the area, they would be more than willing to. If they not willing to do that or accept a inspection fee if you dont buy the property, they really loosing out on a heck of alot of money.

$800 - $1300 a year per property and even more if you look at that amount of money over 20 years.

Imagine declining this service for an investor looking to buy 10 properties in the area?

I'm sure a PM with half a brain would see the long term benefits of providing a service. What the worste that can happen? you pay them a few for their time if you dont end up buying the property.

 

[pennyk]

Thanks Terry..

I'm sure of you had a gentlemans agreements with a PM that you will hand them the long term business of managing this property (8% rental) as well as any other properties which u buy in the area, they would be more than willing to. If they not willing to do that or accept a inspection fee if you dont buy the property, they really loosing out on a heck of alot of money.

$800 - $1300 a year per property and even more if you look at that amount of money over 20 years.

Imagine declining this service for an investor looking to buy 10 properties in the area?

I'm sure a PM with half a brain would see the long term benefits of providing a service. What the worste that can happen? you pay them a few for their time if you dont end up buying the property.

I guess it just doesnt work that way here in Australia. the property managers are usually in a different part of the business than the selling agents. They usually have a different skill set, and usually different attitude than someone who is looking at growing a business.
Maybe if you had a small one man band agency, they would do it for you. But I've never heard of people working this way. you definitely wouldnt be getting an independent opinion. As others have said, a buyers agent is really the person who does this in Australia.

 

[Robbiep]

From my personal experience with Property Managers, they have a more than adequate skill set to go a property and do a basic inspection of the property, similar to what the do on a regular basis with the properties thet manage.

That said, when the time comes i will try my luck with them. Personally i dont think they will turn away business.

 

[Terryw]

Will like to see how it goes.

Another problem is risk.

What if you buy a property that a rental agent says is 'good' only to find out later it is not.
You might be worried about the fact they may want you to buy it just so they can rent it out. They may also try to talk the current owners into signing up with their agency for the sale - because they have a potential buyer.

They will also have a risk - that you buy the property and then later find problems and then try to claim they mislead you etc.

 

[Robbiep]

Hi Terry,

I did think about the risk of a PM trying to pursuade the vendor to sell to through their agency or providing me with an inaccruate inspection.

Firstly, i think there should be an element of trust in business. Agencies who are untrustworthy will eventually fall short, especially if real estate is their bread and butter.

Prior to any inspection, if it made them feel comfortable, i could sign a letter acknowledging that i will not hold them responsible and that the inspection they are providing me is one of a basic nature.

I guess theres always the option of getting a building inspector to do a thorough inspection

 

[Terryw]

But the building inspector is not going to tell you about the bikies next door or the park with graffiti up the street. Even if you ask for all this they would be reluctant to provide information which is outside of their insurance coverage.

 

[knightm]

robbie,

you own 30 houses, if its worked for you before, try it here. as you can see its not common practice in oz but if you are good at picking the quality pm's it might work. the only reason it might not is the generally poor quality and vested interests of pm's here.

 

[JWR]

This is what Margaret Lomas does - but she gets 3 opinions to ensure consistency. She often picks the most professional/thorough of the 3 to manage the property if she buys it.

I think its a great idea and its what I did for my first and second property (QLD and SA). Its no use spending airfare tickets, accomodation etc... when I cannot even tell very well (yet) the little things wrong with the house.

Pictures should suffice and major structural damages will come up in the B&P. Viewing it brings emotion into it and so even if it was within driving distance I probably wouldn't go and look at it anyway.

 

[mrmonopoly]

This is what Margaret Lomas does - but she gets 3 opinions to ensure consistency. She often picks the most professional/thorough of the 3 to manage the property if she buys it.

I think its a great idea and its what I did for my first and second property (QLD and SA). Its no use spending airfare tickets, accomodation etc... when I cannot even tell very well (yet) the little things wrong with the house.

Pictures should suffice and major structural damages will come up in the B&P. Viewing it brings emotion into it and so even if it was within driving distance I probably wouldn't go and look at it anyway.

I was just about to say the exact same thing regarding Margaret Lomas advocating this method, and personally agree that so long as you have done your DD on the property manager in question and the numbers really do stack up then there shouldn't be a problem if your holding for the long term.

My only personal concern with this method, is that having worked in the industry myself in both the UK and Australia, the one problem with site unseen investing is that you can often end up with a generic property, which whilst the numbers work well as far as acquisition and rental yield are concerned. The fact that it is so generic can often mean the ability to fetch an above average resale price can quite substantially be affected.

Just my personal view though, and over a long term hold the difference may be quite irrelevant.

 

[Ed Barton]

Ed, thanks for the advice, but i currently own a portfolio of 30 properties back in South Africa. Out of the 30 properties i own, i have only physically been to 2 of them. The other 28 were bought without ever going to them. If the properties were below market value, positive cashflow (i.e the numbers worked) i bought.

Of the 30 properties I own, they were all sourced myself. I never used an agent and i never used a buyers agent.

The process i had in place for buying blind was what i mentioned above i.e. getting letting agents to do the ground work.

In terms of appearing ignorant on the process, i have only been living in Australia for 9 months, which is why im asking so many questions about how things work etc. As you know, things here work very different from state to state, and even more different between countries. i,e South Africa and Australia

ok cool. i was concerned it was your first ip and would stuff things up. if it's worked for you in SA then why not give it a go here? i'd be interested to hear PMs reaction to your proposal.