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Successful real estate investors always look for opportunities for good deals. And, vacant properties can present outstanding options. As such, new investors often ask me how to determine if property is vacant.
Driving by a property gives you a good sense of whether or not a property is vacant. Overgrown grass, no blinds on the windows, mail overflowing from the box, and any other signs of general abandonment mean a property’s likely vacant. These homes can offer deep discounts for investors.
In the rest of the article, I’ll discuss vacant properties in more detail. Specifically, I’ll cover the following topics:
- Why Vacant Properties Matter to Investors
- How to Determine if a Property is Vacant
- Alternative Options for Determining Vacancy
- Final Thoughts
Why Vacant Properties Matter to Investors
As any new real estate investors will tell you, houses are expensive. Houses listed on the Multiple Listing Service (MLS) at retail prices can be very expensive. As a result, savvy investors always look for opportunities to purchase investment properties at a deep discount. Vacant homes can provide such an opportunity.
When homeowners abandon a property, they typically do so for one of two reasons:
- Major maintenance issues: Sometimes, a home can have such significant maintenance requirements (e.g. leaking roofs, broken HVAC systems, collapsed flooring, etc.) that fixing those items requires too much money. Instead, homeowners simply abandon the property, letting it continue to fall into greater disrepair.
- Financial issues: Somewhat related to the above, homeowners in financial trouble may just up and leave a property. Rather than continuing to pay their mortgage and other property-related expenses, they just leave. Eventually, a lender will foreclose upon and try to resell the property. But, for a period of time, it will inevitably remain vacant.
Regardless which of the above situations occurred, vacant properties create massive amounts of costs. Municipal fines add up for landscaping, paint, and utility-related citations. Pipes can freeze and burst. Animals can get into the home and do a tremendous amount of damage. And, if a major issue existed before abandonment, there’s a good chance it will become even worse during the vacancy period.
With this sort of distressed property condition, traditional lenders will not approve loans. In other words, people looking to purchase a primary home will not be able to qualify for a conventional mortgage (e.g. your standard 30-year mortgage). Additionally, distressed properties definitely won’t qualify for FHA and other government-backed loans. Appraisers will flag all of these major maintenance and repair issues, and the loan will fail to meet underwriting criteria.
The owners of these vacant homes now have a major problem. They own a property that they either can’t or won’t pay to repair while unable to sell it to people looking to purchase a primary residence with traditional financing. Bottom line, these homeowners likely need some cash, they definitely want to get rid of their vacant property, but they cannot sell their homes to most buyers.
Enter real estate investors as problem solvers. As illustrated above, most owners of vacant properties are motivated sellers, even if they haven’t tried listing their abandoned homes. Using cash or hard money loans, investors can purchase these homes to fix & flip or rehab and convert into rental properties. With hard money loans, lenders base approval on the hard asset itself, meaning the property. More precisely, these lenders base their loans on the after-rehab value (ARV) – what the property will be worth following a renovation. Consequently, the fact that a vacant home is distressed doesn’t matter.
This creates a win-win situation. Win 1: real estate investors can purchase these properties at significant discounts due to both their A) current condition, and B) the lack of competition from primary home buyers. Win 2: the owners of the vacant properties can sell the abandoned homes, put some cash in their pockets, and get rid of a major headache and financial burden.
How to Determine if a Property is Vacant
If you see the potential value in buying vacant homes as an investor, the next question becomes: how do you actually tell if a property is vacant?
Personally, I like to use a technique I call “driving for dollars.” It’s really as simple as it sounds. You hop in your car, drive around your neighborhood for an hour or so, and look for properties that have some of the below tell tale signs of vacancy:
- Overgrown grass, bushes, and other signs of landscaping neglect
- No blinds or window coverings – can see right through the house
- Snow on the ground but no footprints or tire tracks
- Stacks of garbage outside
- Mail jammed into and overflowing from the mailbox
- Any other basic signs of abandonment
While these indicators may not provide a 100% guarantee that a property is vacant, seeing a few of the signs makes it pretty clear that someone doesn’t live in the house. And during this drive, I make a note of all these vacant properties. As property records are public information, you can then look up who owns the place and begin the direct marketing process. Of note, many municipalities now have this information in online geographical information systems, where you can look up a property parcel by address to find the current owner. Even easier is to skip trace the owner, and it’s inexpensive.
Alternative Options for Determining Vacancy
Alternatively, you can access vacancy records indirectly through the US Postal Service. If a mail carrier can no longer fit mail into a mailbox, he or she will file a report. From these reports, USPS compiles lists of properties where they can no longer serve mail due to apparent abandonment.
If interested in accessing USPS records, our Investor’s Edge software has all of this information. This tool includes a database of over 160 million properties! And, you can use our detailed search filters to narrow properties down by location, vacancy, and outstanding mortgages. Armed with this information, investors can find off-market properties with potentially motivated sellers. If a property both A) is flagged as vacant, and B) has no or a small mortgage, the owner likely has the motivation to sell, as he or she has equity to convert to cash by selling the property.
As you save these potential deals, Investor’s Edge also lets you directly market to these homeowners. You can print postcards with pre-filled addresses or automatically send a voicemail to your saved list of potential deals. Investor’s Edge is also a national database, meaning you can find potential deals on vacant properties all over the country – not just your own market.
Without a doubt, vacant properties can offer investors incredible deals. Buying these properties has the added benefit of allowing you to help solve a homeowner’s problem by turning the equity in an abandoned property into cash.
To find these properties, I can’t emphasize enough the value of the “driving for dollars” approach. If I drive around for an hour or so, I typically see 20 to 30 vacant homes. Most won’t turn into deals, but they give me great leads, especially when I combine my notes with property data from Investor’s Edge. Simply put, vacant properties offer real estate investors outstanding buying opportunities, even in otherwise competitive markets.