Investment Properties: A steal or a scam?

Technically, every home on or off the market is a potential investment property, no matter what use or purpose you have in investing.  But, what about the deals that look too good to be true, are those properties a great deal or the next scam? It could be the case for either, and much should be taken into consideration before deciding whether or not to invest.

As described by USNews.com, “A generation buried in debt must be careful when purchasing a home.” With a Home Fax Report from Nationwide Home Fax, you can always Know the Home Before You Buy, as due diligent research and investigative techniques should always be exercised in cheap investment properties.

Take this example for instance, a home recently posted on eBay.com.  Here is how it was found and, in brief, what to consider through a potential purchase similar to this: 

eBay Property Description: 3 bed 1 bath valued at $50k

Posting Content: Auction Format Starting at $1,200

 

1     

1.    Note the top portion: “Seller assumes all responsibility for this listing.” When purchasing properties on eBay, their terms and conditions do not protect buyers from their purchase (like normal listings for most products) as transactions are handled outside of eBay (ex: no PayPal payments). Most sellers will expect cash, money order, or certified check.

2.    Take into consideration and read how they accept payment for the property and the process the seller follows. In this case the seller states:

“Deed preparation and processing fee included with the winning bid. Deeds will be prepared and transferred as soon as possible after receipt of total funds and your vesting deed information. Seller will submit the buyer's deed to be filed through the appropriate county recorded office. Due to several non-performing bids, a 150.00 processing and listing fee is being added to the final bid price. Remember, bidding is a commitment to purchase the property!”

3.    Before actually researching the property, research the seller. This seller had 8 total feedback ratings (all for properties sold, most of which were sold to buyers with 0 feedback), and their seller rating was 83.3% positive (that’s horrible on eBay, FYI). After using some brief search engine keywords, no noticeable scams associated to this seller were found.

4.    Find the current owner and ensure no liens exist against the property by locating the county tax assessor records. In this case, records showed that $7,190.26 in delinquent taxes were currently owed on the property. 

5.    After identifying the owner of the property, and finding any discrepancy with the tax records, contact the seller and the county to verify whether or not they still exist as a lien on the property. 

6.    Upon contacting the seller we inquired about the current liens, asked for the sellers name and, or company, and provided our phone number to be contacted directly.  We received a response (to a rather descriptive inquiry) which stated, “I’m a private owner. The tax bill has already been negotiated with (the) County. I’m a wholesaler that buys properties in lots of 5 and 10.” 

7.    Next, contact the county assessor and determine in the liens have been cleared or not. (In this case, the county office was not open and we continued our research before declining to even contact the assessor).

8.    Locating the deed. After identifying the seller, we located the deed which currently listed the seller as the most recent grantee of the property, but the information did not corroborate with the current eBay seller or his business, which we found through additional eBay.com listings and further research. However, remember that the seller stated he was a private owner. This did not appear to be the case, and the seller wouldn’t identify his name, nevertheless which was listed on tax records as public information.  

9.    After additional research, we found the eBay seller to have other properties associated to a business that owned many deeds in the same county for similar properties. The seller wanted to transfer the title on a quit claim deed, not a warranty deed, and as the seller’s information did not corroborate with the current owner and deed holder, we declined to purchase the property.  Note: we are not saying this seller is fraudulent, nor is every cheap property listed a scam, but rather the totality of the circumstances did not warrant further investigative research due to the findings to that point. 

This is a very brief example of how to identify and research cheap investment properties. If no issues would have been discovered, or very few pertaining to the actual acquisition, here’s a few other brief examples of research to be completed or what you can do to ensure you’re dealing with an honest seller who truly owns the home:  

• Drive by the home and compare current condition to the provided photos
• Contact previous buyers and ask for their feedback regarding working with the seller
• Many sellers who do purchase in bulk have not seen the property. Find photos of the inside of the home (or attempt to view the inside when driving by the property). With a quit claim deed, there is no guarantee that the property is in livable condition, let alone a wise investment.
• Contact the county assessor and deed record office to confirm the liens, current owner, deed holder, and verify the property is actually for sale.
• Contact people who have been involved with any other previous property transfers with the same company (find pre-existing deed transfer records for other properties in the same area).
• Contact the seller listed on the tax record by phone to speak with them directly. 
• Contact the business owner (if any) and confirm that they are currently selling the property.
•  Speak with neighbors near the potential home and gather their thoughts on neighborhood activity, vacancy rates, and safety (for example).
• Contact a real estate agent or appraisal office to determine potential value. 
• Follow up accordingly based on your findings through supplemental research. 
• Establish an action plan of what you will do with the property. Are you going to fix and flip, straight flip, rent out, or live in the home yourself?
• Have your cash or payment lined up for yourself after detailed communication with the selling property.  

That’s all for this post. Hopefully these tips will help you along the way in your next potential property investment purchase.  Remember to always Know the Home BeforeYou Buy with a Home Fax Report from Nationwide Home Fax! See how we can help you in your next purchase, investment, or rental property today.