Are "As Is" Properties Worth Considering as a Real Estate Investor?

Buying a property is a major purchase, whether it’s a family home that represents the bulk of your net worth or merely another new addition to a packed portfolio. Naturally, real estate investors and homebuyers undertake diligent efforts to make sure the property they’re buying isn’t a lemon. You don’t want your $250,000 purchase to have an invisible $50,000 defect, after all.

There are protections and assurances in place for buyers in most real estate transactions. Sellers typically attempt to get the home in good condition before the sale, and if they don’t, a home inspection and further negotiations can pressure them to make repairs as necessary to complete the transaction in a satisfactory manner.

But sometimes, homes are sold without such protections and assurances: “as is” properties, as the name suggests, are sold in their current condition – for better or worse.

It certainly sounds like a risky proposition.

But are as is properties worth considering as a real estate investor?

What Is an As Is Property?

Some properties are listed for sale “as is,” indicating that the property will be sold in its present condition, with no repairs or modifications to be made by the seller. Typically, the buyer will have no protections and no recourse for anything that might be wrong with the property – regardless of whether the seller knew about those defects and regardless of the severity of those defects.

What motivates sellers to list a property as is?

•         Faster sale. Some sellers just want to sell the property as quickly as possible. Inspecting a property takes time. Repairing issues takes time. Dealing with negotiations, modifications, and maintenance takes time. Selling a property as is, even if it’s for a lower price, can be preferable to the weeks to months of added effort necessary to follow through with a normal sale.
•         Lack of knowledge or control. Other sellers are motivated by their own lack of knowledge or control over the property. For example, imagine you’ve inherited a property from a relative who lives across the country. You’ve never even visited the property in person, and you have no way of knowing whether there’s anything wrong with it. You aren’t interested in moving cross-country or even visiting the place – but you are interested in selling the property for some extra money. Why not sell it as is and make your life easier?
•         Hidden issues. Finally, a seller may be motivated to sell the property as is because they know, or suspect, that the property has significant issues. An as is property sometimes won’t even be functional as a primary residence – at least not right away. Rather than spend the time and effort necessary to analyze the problems, hire contractors, and verify the repairs, some sellers elect to ditch the property and shift the burden of responsibility in exchange for a lower sale price.

The Risks and Dangers of As Is Properties

There are significant risks and dangers associated with as is properties. In fact, the unknowns here are so extreme that many homebuyers won’t even consider an as is property. Depending on your risk tolerance and your approach, such a mentality may be warranted.

These are the most notable risks to keep in mind:

•         Lurking issues. You don’t know the condition of the property. Even the seller may or may not know about the condition of the property. For all you know, there’s a serious problem with the foundation that jeopardizes the safety of the property and could cost tens of thousands of dollars to fix, in addition to deep mold issues in the walls of the property – or there might be nothing wrong with the property at all. You don’t want to be stuck with a property that’s rife with material issues.
•         Unanticipated expenses. In line with this, if you intend to use the property for anything (such as habitation), you may be on the hook for expenses that you cannot fully anticipate. Getting a property in a decent neighborhood for $90,000 may seem like a steal of a deal – but if you have to spend another $100,000 fixing it up, suddenly, you might have trouble justifying your investment.
•         Lack of recourse. Ordinarily, homebuyers have recourse if certain types of significant issues are discovered after the sale is final. These are especially powerful if there is a specific home warranty attached. But if you buy an as is property, the onus is entirely on you to address any issues that might be there – and there’s nothing you can do about increased costs or unknown issues once the sale is final.

The Potential Upsides of As Is Properties

Counterbalancing these risks, there are several potential upsides associated with as is properties.

•         Low sale price. The most notable advantage of an as is property is the relatively low sale price. Sellers aren’t stupid, and even if they are, they probably have competent real estate agents representing them – and competent buyers who won’t overpay for a property they know nothing about. If sellers want their as is properties to move, they need to price them appropriately. Sometimes, sellers will attempt to estimate the number and severity of defects in the property, marking down the price in line with this estimate. Other times, sellers will simply build a general discount into their listing price. Either way, buyers have the option to get a great deal. As long as the repair costs are reasonable, it’s possible to turn an as is property into a very inexpensive yet valuable addition to your portfolio.
•         Less competition. First-time homebuyers rarely want the uncertainty, hassle, or risk associated with an as is property. People looking for a primary residence also typically want a home in good, reliably assured condition. And even seasoned real estate investors often avoid as is properties because of the unknown variables unique to them. Accordingly, there’s usually much less competition for as is properties – which means you’ll have more opportunities and more negotiating power.
•         A quick sale. Remember, as is sellers are typically motivated to sell the property as quickly as possible. This can be advantageous for buyers as well. If you want to get moving in your real estate investing strategy, or if you just want to avoid the potential roadblocks and hassles of typical property purchases, this can work in your favor.
•         Total flexibility. It’s reasonable to think of an as is property as a kind of blank slate. Sure, there may be several major issues with the property, but this also presents an opportunity – it’s your chance to repair, modify, or dress up the property as you see fit. Assuming the price is right, you can seize this chance to reform the property however you think will benefit you.

How to Take Full Advantage of As Is Properties

How can a real estate investor take full advantage of as is properties, mitigating the risks while simultaneously reaping the best potential rewards.

•         Understand the risks. First, you need to acknowledge and assess all the risks. The property may be priced extremely competitively. The property may have unlimited potential in terms of renovations and repairs. The property sale may close very quickly. But if you start drooling over those advantages without meticulously calculating and considering the disadvantages, you’ll set yourself up for failure. What if the repairs cost twice as much as you anticipate? What if there are roadblocks to completing the renovations as you desire?
•         Think long term. House flipping is losing popularity, in part because it’s becoming harder to achieve a profit through it. There may be good targets for house flipping out there; in the hands of the right investor, it’s possible to secure an as is property, make all necessary improvements, and sell the property for more than you paid for it (and the improvements). But most investors should not bank on the prospect of flipping successfully – especially with as is real estate. Instead, it’s better to think long term. Is this property in a neighborhood with lots of upward growth potential? Is it possible to make a long-term profit with this property even if there are more repairs than you expect?
•         Do your due diligence. Even if the seller outright refuses to make any repairs or changes to the property before or after the sale, there are some steps you can take to protect yourself. You can conduct a title search, conduct a home inspection, and ultimately pull out of the purchase if you find anything that jeopardizes your investment – or your calculations. It’s your responsibility to discover and assess all flaws and defects with the property before you finalize the transaction. Consider working with a real estate agent, a real estate lawyer, a competent home inspector, and any other experts you feel are relevant to properly assess the property’s condition.
•         Add some protective clauses. When making a purchase offer, add some protective clauses. At minimum, you’ll want to reserve the right to pull out of the deal if you find any significant issues with the property after your inspection. You probably won’t be able to negotiate with the seller, but you’ll give yourself an emergency ripcord if you find something egregious before the final sale.
•         Estimate conservatively. Finally, estimate conservatively to financially protect yourself. Even if you have a home inspection done, and even if you have a contractor estimate the costs of renovation on your behalf, you should still plan on higher costs – and extra costs you can’t currently anticipate. If the deal still looks profitable and favorable after building in this buffer, you should feel much more confident moving forward. It’s one of the easiest ways to mitigate risk when considering an as is property.

Buying an as is property can be risky – especially if you don’t know what you’re doing. But the process becomes much more accessible and likely to turn in your favor if you have a real estate agent or seasoned real estate investor on your side to provide guidance.

At Invest.net, we have top investors and real estate agents on standby to help you achieve all your investment goals. If you’re ready for your free consultation, contact us today!

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