While scrolling through your local real estate listings, you may have come across the term “as is.” Despite how common it is, many investors don’t understand the full scope of what this term entails. Using this guide, you can brush up on everything you need to know: what it means, how to navigate it, and how it can impact you when buying a house for investment.
What Does It Mean When You Buy a House As Is?
Buying a house as is means that the seller will not make any repairs or improvements to the property before the transfer of ownership. As such, it will typically apply to properties that are real estate owned or sold at auctions. It could also be used by sellers who do not have the financial means to make the upgrades and who need to make the sale quickly.
By stating that a property is being sold “where is”, the seller indicates that the property’s location (including the faults which this may entail) must be accepted. This will usually come into play in cases that the property is in a flood zone, in an airport flyover zone, or that the property is not appropriately zoned.
Pros and Cons of Buying a House As Is
Con: Quality
As is condition in real estate isn’t typically a term you’d associate with the best investment properties for sale. Quite the contrary, property sold as is will usually be in subpar condition and may require some extensive upgrades. From the seller’s perspective, selling a house as is would be the result of not being able to afford the upgrades, or otherwise not anticipating a large enough increase in its value. Real estate investors should, therefore, be wary of a real estate listing advertising an as is house.
Related: Property Renovation 101: What Improvements to Make for High ROI
Pro: Price
Buying a house as is will typically be a great way to score a real estate deal. With these home sales, there is an understanding that sellers will not be able to ask for the highest prices. This can be a fantastic opportunity for investors who are looking for a bargain. If your budget permits potential upgrades, buying a house as is can be a very worthwhile investment. Due to the low prices on average, you can expect a relatively high return on investment. Before making your investment, however, it would be wise to fully research your ROI, and figure out whether the cost of repairs will have a large impact on your profit or not.
Con: Risk
Buying a house as is can be a pretty risky endeavor. In most cases, homeowners are required to disclose their knowledge of any problem areas that the property may have. In the case of as is properties, however, this becomes tricky. For instance, these properties may be sold by a bank or other financial entity, therefore lacking any inhabitants. This reason makes buying a house as is without inspection a definite no-go. There could be a multitude of issues that both the seller and buyer are unaware of, some of which may jeopardize the success of your real estate investment. A proper home inspection is a must when buying a house as is.
Pro: Buy low, sell high
Buying a house as is can be an ideal scenario for the avid house flipper. Since these investment properties will be listed for low prices, you can free up a sizeable budget for upgrades, and resell for a substantial reward. The fix and flip real estate investment strategy allows you to look past the current condition of the as is house and see the potential for a fantastic house-to-be.
Related: 3 Mistakes to Avoid During a Fix n Flip
3 Tips for Buying a House As Is
Get a Home Inspection
It’s crucial that you know what to look for when buying a house as is. The potentially poor condition and lack of tenants mean that a home inspection should be routine if you intend to make this type of purchase. Buying an investment property entails a lot of due diligence, and proper inspection can check a lot of items off your list. Most importantly, it can reveal what the property’s problem areas are, so you can get an estimate of how much it will cost to repair. It would be unwise to invest in real estate without running these numbers first.
You should also thoroughly research your service provider and the different inspections they will conduct. In this circumstance, you’ll want the inspection to be as holistic as possible. In addition to the structural issues, you should be looking for an inspector that goes above and beyond; searching for things like pests and asbestos, among others. A run-of-the-mill home inspection can be costly down the line.
Related: How Much Does a Home Inspection Cost in 2019?
Establish Contingencies
When buying a house as is, contingencies are a must. You’ll want to guarantee that you have a way out of purchasing the investment property if the home inspection results are worse than expected. After all, if the defects are too significant, this will mean more expenditure on repairs and a lower return on investment.
Think About Investment Property Financing
If you’re buying a house as is for the purpose of renting it out, there are some financial considerations to be made. Because of their current state, many as is houses may not qualify for a rental property mortgage. You should, therefore, consider whether buying a rental property with cash is the right move for you. This could be feasible since an as is listing will typically be cheaper than others, and this route involves no interest in the long term.
Related: Selling a House As Is in NJ: Here Is What You Should Consider
Bottom Line
The risks of buying a house as is should definitely be weighed by real estate investors. One the one hand, you may be scoring a fantastic real estate deal, ideal for a high-profit flip. On the other hand, you may get stuck with a lemon property, whose problem areas prove to be burdensome. But by doing your proper research, and crunching the right numbers, these properties can be very worthwhile investments.
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