Buying As-Is Rentals
I am working on buying my second rental property. The property that I am looking at is being sold as-is. It is a 3/1 with a section tenant for $690/mo. Asking price is 45K, is said to appraise for 60K. The seller says that the only work needed is roughly $3000 in cosmetic. I've visited the property and seen visulally what needs to be done. I was told the property was rehabbed 2 years ago and that everything else is in good order. My question is - being that I cannot make the contract contingent on an inspection (like my first property), how should I determine if the seller is telling the truth (broker for another investor) about the state of the property. Should I fork out the $225 for an inspection before placing a contract? The reason for sell, I'm being told, is that the owner is out of state and wants to get rid of it. According to tax records he is out of state.
Thanks for any advice in this matter on buying as-is properties.
I'd say there is another problem. Ask the city of he did some work that he didn't get permits for and they want redone, make sure it is structurally sound, pipes work, etc. I'd fully test this property out before doing anything. Why would he sell it "as is" if the only problem was that he lived out of state. I'd say he is trying to hide something.
Just because the property is being sold "as-is" does not mean anything is wrong. It simply means that if you or your home inspector find anything that needs to be fixed, the seller will not pay for any repairs.
There is nothing about an "as-is" sale that would prevent you from having your own professional inspection. Your purchase offer could even be contingent upon buyer's acceptance and approval of a professional inspection report to be completed within a reasonable time (such as 15 days).
I suspect that because the seller is out-of-state, he/she can not conveniently coordinate any repairs that may be indicated by an inspection report. Thus, the "as-is" declaration.
Furthermore, since the seller has priced the property so much below market, the seller may not be fully aware of the current market values (you said out of state seller). By all means have the professional inspection done, and take the cost of the suggested repairs into consideration when you make your offer.
I "coordinate" repairs and maintenance on my properties over the phone. Doesn't matter if i'm next door or across the country. And how would he not know the value when "is said to appraise for 60k"? Sounds like he would know the value pretty well. Also, the seller knows the condition because he said to the poster "only work needed is roughly $3000 in cosmetic"
rmdane2000,
We were never told who "said" the property would appraise for $50K. Though the seller says that the property only needs about $3K cosmetic, then could be just for paint and carpet -- a typical expense when there is tenant turnover after a long rental.
I only surmised that the seller might not be able to conveniently coordinate repairs indicated by an inspection report. We don't know for sure. The fact that you can has no bearing on the actual seller's circumstances does it?
I was only trying to provide a plausible reason for the "as-is" sale, and advise that "as-is" does not preclude a professional inspection by the buyer.
Your superior and condescending tone is not appreciated, and is one reason I will not continue participating in these forums when my free-trial period is up.
It's a plausible explanation, in fact i've sold "as is" myself for that very reason.
I think it's remarkable for an owner who lives across the country to be able to accurately disclose deficiencies on a rental property. I couldn't do it.
daneeque, don't be too bugged about the "as is" stuff. Typically you can still make the bid contingent on inspection. All it really means is he isn't fixing whatever you find and he doesn't know the property well enough to tell you what is wrong with it and be held accountable for what he has told you. It is certainly possible he knows something he hopes you won't find, so do a complete inspection. It is more likely he is just tired of dealing with a long distance property and the last thing he wants is to try to figure out everything that's wrong with a property he has barely seen in years and then coordinate repairs long distance.
An appraisal doesn't mean much without knowing the circumstances under which it was done. We also don't know that this was an actual appraisal or just what a realtor says it would be. Give that 60k number all the consideration it deserves, none at all.
The idea of talking to the city and permitting authority should be reiterated. Since it's your first property, this will start your relationship with them on the right foot, esp. if you ask advice from them and let them know you want to do it right. They should have a file--or some recollection, at least--of the property and its inspections, flaws, etc. I found out a lot--mostly good, thankfully--about my first rental from doing that, and the rental inspector likes me, which is a big plus.
Just to clarify, yes, across the country is easy. That is what a management company is for. If your paying 5-15% for management of a property, they had better be able to put together a seller disclosure. Also, reread my post, I never said I LIVE across the country, if I am, I said I CAN setup any repairs and maintenance necessary. I would hope this individual knows somebody in the business they could contact if they just rehabbed it 2 years ago.
Um...an the appraisal...yeah, "is said to appraise for 60K" that must be the next door neighbor that said that...that's plausible.
Also, if he is "out-of-state" this is likely being sold by a realtor. Any realtor worth his commission should/WILL be able to setup some simple repairs for the buyer, and provide the seller with numerous listings/sales/expired sales/pending sales.
I was only restating what the poster said and applying a little critical thinking. I'm sorry if that seems superior and condescending. Also, you should still have access to the forums after your free trial period is up. Just because I do not agree with you does not mean i'm belittling you. You didn't have to make it personal.
In MY PERSONAL OPINION, an As is property should be inspected THOROUGHLY. Especially if somebody just did a rehab 2 years ago. That sends up red flags all over the place.
As for hiring an "inspector," I've never met one that was worth his fee. I would recommend finding a few good contractors and make a relationship with them. A plumber, electrician, etc. I believe their opinions to be superior to an inspector. The inspector's I've met have gone to a course where they've learned to play with a few toys and notice obvious problems, and make little problems sound like your sitting on a fault line. I've also seen some that make you sign off saying "if I don't find anything, its not my problem."
Once again, all just my personal opinion.
Good luck on your purchase.
[ Edited by rmdane2000 on Date 06/27/2004 ]
Right now in my area there are 17 properties listed that I would consider to be in the rental price range, 12 of those are being sold "as is". That's just based on the limited info from a web site listing, probably more than 12 are actually "as is". I live in a military community, there are lots of absentee owners, and lots of "as is" sales.
A management company can not do a disclosure for you, only the owner can do it. You could certainly use information they provide to assist you, but you're filling it out and liable for any misrepresentation. If they figure out you are doing it based on their input they will likely take issue with it. What do they really know about the property anyway, they haven't lived there, maybe they send someone to walk through every 6 months or so, they really can't help much. Bottom line, you will have alot of "i don't know" answers, and you're going to state you haven't lived there and don't know jack about the place.
A realtor or property manager will be more than happy to tell you what is wrong and arrange repairs, I'm sure they have a friend or relative that is a contractor who over charges and gives them a kickback. They will have you over paying to do all kinds of stuff that doesn't even need done. Arrange repairs yourself? Sure, assuming you know that it actually needs done, you can arrange to have it done, it's not hard to make some phone calls. The prices are vastly different when you are a stranger from out of town on the phone, and when you know the guy by his first name. I appreciate you being willing to pay $900 to put in a new eletrical service and 3k for new heat and air, lets just adjust the price accordingly and I'll take the place "as is" and have my guys do it for me for $175 and $1400. You save the hassles and don't have to come up with 4k out of pocket, I'm happy because I get the place for less. What if you don't have the money to make the repairs, guess you don't have much choice but to sell "as is".
To revisit the appraisal issue, I've had the same property appraise at 52k and at 95k. Again, without knowing the circumstances surrounding it an appraisal isn't very valauble information.
The thread is getting lost in the debate about language and distance.
1. You can make the offer subject to an inspection. The seller is indicating that they make no claims about the condition and are also implying that they will not fund repairs. They did not say you could not inspect first.
2. Are you trying to say the property is rented section 8? If so, find out the rules about inspecting such a property as the tenant's rights have to be respected.
3. If section 8 then there is an annual inspection process. The place will need to pass inspection each year. See when the next inspection is due and if they can release the last inspection report, read it.
To the larger audience...
If a bank takes back a property it is very common that they then sell 'as is'. Even if you know the condition you might not want to attract law suits if you miss something on the disclosure. "As is" is more about "buyer beware" and "the seller does not want to fund repairs".
Buyer's should always beware.
John
[addsig]
In my state, the law is very clear on what a seller is liable for in a "seller's disclosure." You have to be able to prove they lied. "no known problems" and it turns out the basement floods when it rains. You have to prove, it happened to them. Simply saying "it must have flooded for them isn't sufficient." I just had this problem on the purchase of my personal residence. We went through all the strings. Eventually took some money from the listing agent, but nothing from the seller. you have to PROVE they LIED, in my state. Which is extremely difficult. Saying "I haven't lived there for 2 years, but as far as I know, there haven't been any problems with XX and XX." is sufficient for a seller's disclosure, in my state.
newkid:
This may be a regional issue but to me, "as-is" mean much more than "...the seller will not pay for any repairs".
Them paying or not isn't an issue as it's negotiable. The bigger issue is the need to do a more though DD, as there is little if no recourse on the seller.