If you are looking for cheap houses for sale, consider buying abandoned houses. This real estate investment strategy can be very profitable since such properties are usually sold at prices that are well below the market value. Investing in abandoned houses is especially popular with real estate investors that flip houses (renovate and resell at a profit).
So, What Is an Abandoned House?
Just as the name suggests, an abandoned house is a property that is sitting empty or vacant. Vacant properties are abandoned for a wide range of reasons including unexpected deaths, contentious divorces or bankruptcies. Signs of vacant houses include broken windows, overgrown vegetation, and damage on the outside of the property.
What happens to abandoned houses? They usually remain vacant until the owner or mortgage lender decides to sell it.
How to Find Abandoned Houses
Many real estate investors wonder where to find abandoned houses. Such income properties are usually not advertised in newspapers or the listings of real estate companies. Here are some ideas for finding off market, old abandoned houses:
1. Check with banks
Banks are ideal places for finding abandoned houses. When someone abandons a property, there is a possibility that the individual had a mortgage that they could not afford. As a result, the bank that provided the mortgage may have opted to undertake foreclosure proceedings in order to repossess the property and resell it. Banks usually keep a list of foreclosed homes that are up for sale, usually at a price well below market value. Visit local banks and lenders to find out if they have any abandoned houses for sale.
2. Drive for dollars
Driving for dollars basically involves driving around a neighborhood while looking out for abandoned houses. Uncollected mail, overgrown weeds, heaps of garbage, and broken fences are some of the telltale signs of a vacant property. When driving for dollars, you could also talk to local postal workers. Such workers are usually aware of houses that have received notices to no longer receive mail. Local real estate agents can also come in very handy for identifying cheap abandoned houses for sale in the neighborhood.
3. Consult local authorities
Usually, local authorities don’t like the idea of abandoned homes in their area. Besides being an eyesore, such properties attract squatters and can become a security risk. In addition, a vacant property means that the municipal is losing potential income from property taxes.
Once you have identified an abandoned property, visit the local county office and request for the property records connected with that address. These documents will give some details about the last owner. For instance, you might find out that the landlord has defaulted on property taxes for a long time and is nowhere to be found. There might even be criminal or civil proceedings pending against the property owner. In such a situation, the state or local government might have repossessed the real estate property in order to sell it.
How to Find the Owner of an Abandoned House
Besides visiting the local authority, other ways of how to find out who owns a property include:
- Leave a note in the mailbox or under the front door. You never know if the owner of the property or landlord will just show up unexpectedly.
- Ask the neighbors around the property. Quite often, they will have some information that could prove useful.
- Examining the tax records of an abandoned house is another great way of identifying the owner. If you find the owner’s current address from the tax records, you can write them a letter asking if they are willing to sell.
- Use Mashboard’s property ownership database to easily identify the name, address, email, and even phone number of the owner of an abandoned house.
How to Analyze Abandoned Homes
Before buying abandoned houses, you need to carry out a thorough analysis to establish if the investment is worth it. Here are some of the things you need to analyze:
- Latent defects – In most cases, abandoned houses are old or dilapidated properties that require renovation before being sold or rented out. Besides appearing shabby from the outside, the house might have other latent defects that are not easily seen with the naked eye. This could be outdated plumbing or electrical installations, structural damage, mold in the walls and ceilings, and termites or other creatures residing inside. Hiring a qualified home inspector is therefore very important before making a purchase.
- Investment property analysis – An investment property analysis will show you the potential earnings you can expect from the abandoned house. Some of the metrics to check include cash flow, net operating income, cash on cash return, cap rate, and return on investment. Use Mashvisor’s investment property calculator for a complete and accurate analysis.
- Comparative market analysis – This is an analysis of the current value of the home based on prices of similar rental properties (comparables) in the neighborhood. This involves checking data such as location, square footage, number of bathrooms and bedrooms, year built, recent renovations, and unusual features (like swimming pools).
How to Buy Abandoned Houses
When it comes to financing abandoned houses, there are a wide range of options:
- Conventional mortgage – This option works best for investment properties that only require a little sprucing up before being resold or rented out. However, it would be advisable to get a mortgage preapproval as early as possible.
- Renovation loan – If the investment property requires extensive renovation, you can finance it using a renovation mortgage. You will need to have a credit score of not less than 620 to qualify.
- FHA loan – Federal Housing Administration loans are a good option for people that don’t have a good credit score. The minimum down payment could be as little as 3.5% but you will be required to live in the property for a set period of time.
- Home equity lines – If you own a home, you could consider opening a home equity line of credit. Lenders can offer up to 85% of the market value of your home.
Closing Thoughts
In cities like Detroit, Philadelphia, Los Angeles, and even all across the Florida real estate market, you will find cheap abandoned houses for sale. However, be sure to do your due diligence before taking ownership of an abandoned house. Without proper preparations, buying a vacant investment property can turn out to be just a waste of time and money.
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