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Investment Property Tips: How to Buy Abandoned Property

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Most real estate transactions, whether they involve an investment property or an owner occupied home, happen the traditional way.  That is, a real estate agent scans open MLS listings, and then forwards information on all the qualified properties to the buyer for his or her perusal.  Although this is the safest way to buy property, it is not necessarily the best way to get killer deals.  If you are looking for ultra-cheap properties, and you are willing to put in the time and effort necessary to rehab them, buying abandoned property might be worth looking into.

First, what exactly is an ‘abandoned property’?  Although the actual legal definition can vary from state to state, simply put, an abandoned property is one that is no longer under the care of its owner.  There are several reasons that abandoned properties exist – for example, it could be under a delinquent property tax status, it could be dilapidated to the point where it is no longer safe to occupy, it could be owned by a deceased individual, or the mortgage could be so far underwater that that the owner’s only option was to simply walk away.  Obviously in cases like these, you could potentially acquire an abandoned property for literally pennies on the dollar.

There are several ways to find abandoned properties to acquire.  The best way is to simply drive around and look for boarded up houses.  Once you locate a potential acquisition target, jot down the address, go to the recorder’s office in the county courthouse, and check the public records for ownership information.  The records will also show the assessed property value, the presence of any liens, and the amount of back taxes owed.   All of this information is critical to your analysis.

The next step is to run the numbers.  Take the assessed property value, and subtract from it any costs necessary to acquire and rehab the property.  As an example, let’s say that an abandoned property is assessed at $100,000, and that $10,000 in back taxes are owed.  Additionally, you estimate that it will cost $30,000 to make the necessary repairs.  You also estimate that the transaction fees (title / legal costs, appraisal fees, inspection fees, closing costs, etc.) will total about $2,000.  Thus, your offer would be $58,000 ($100,000 – $10,000 – $30,000 – $2,000).  Then check the comps of other similar properties sold in the area in the past 6 months.  If the comps sold for substantially more than $58,000, you’ve got a winner!

Once you’ve found a good abandoned property and analyzed the numbers to determine your offer, the next step is to actually try and purchase the property.  To do this, you could approach the current owner with a cash offer (if he or she is still alive and accessible).  Alternatively, if the owner is deceased or you are simply not comfortable with the legalities of the transaction, you could find a real estate agent or broker who is experienced in this type of transaction to guide you through the process.

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