Buying a Home You’ve Only Seen Online: What You Need to Know
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Not only can you buy a house you’ve only seen online, as a real estate investor, you might prefer to do so, at least once you have a system in place. Buying homes online has actually been a strategy for people buying investment property for some time, particularly if said investment property is in an area not local to the investor. And with the coronavirus on the scene, more people have adopted the process as they have become used to doing business virtually, plus not physically going into homes addresses safety concerns.
Buying a home online can speed up the acquisition process, saving you time to plan your next investment opportunity. Here’s what you need to know.
Set parameters for searching
Determine the niche you want to market to for this investment property. This includes price range, home size, location, and any other parameters you deem important.
For example, your niche could be a three-bedroom, two-bathroom home under $200,000 located near a college or university so you can rent to students.
Note that although having some parameters is good to narrow down your market, having too many will make it harder to find the right deal. So limit your parameters to make it easier for yourself.
Check out the neighborhood — virtually
With online house shopping, you probably won’t be familiar with the neighborhoods. But you can find out all the information you’ll need — you guessed it — through online searches. You can get employment data from the Bureau of Labor Statistics, income ranges from Sperling’s Best Places, school ratings from Great Schools, and crime statistics from AreaVibes, all from the comfort of your own computer.
Learn to analyze the property
As with any investment property, whether you’re buying remotely or in person, you need to analyze it to help determine whether it will be a moneymaker for you. There are many formulas for rental properties to determine this. The fastest one investors use is the 1% rule, meaning you should be able to make 1% of the home’s price in monthly rent to make the deal worthwhile. So for that $200,000 property, you’ll want to get as close to $2,000 a month as possible.
If you have a favorite method of running the numbers, use it for your online deals just as you would with any other deal. You can determine what the property will likely fetch in rent by conducting an online search to see what similar area homes are renting for.
Determine what you’ll offer
This step is the same as an offline deal as well. Investors routinely offer less than asking price, but doing so remotely presents more of a challenge if you don’t know the local market and conditions: Is it a buyer’s or seller’s market there? It’s important to find this out so you’ll know how much less to offer and still get the deal. A real estate agent will be a great help with this step.
Put the home under contract
Again, this step is also the same online as an in-person deal. You want to get the home under contract for an investment deal ASAP. You can then use the due diligence period to determine whether you will keep the deal or bail on it. If the home doesn’t have a clear title or pass inspection, for example, you can walk away (if you have the proper contingencies in place, which an agent can help you with).
Use a real estate agent
You want a real estate agent local to the area you’re buying in because they can direct you to the right neighborhoods and should have the connections for appraisers and home inspectors.
Although a real estate agent can handle all the steps outlined above for you, it’s always a good idea if you understand the process. That way, you can still be in charge of the steps that make sense for you to do on your own, and you will better know how to manage your agent for the rest.
You can choose an agent based on referrals. If so, referrals from other investors will probably be best. Agents who work mainly with investors have slightly different skills than those who work mainly with primary homebuyers, such as knowing what makes a good investment deal and the importance of acting quickly when a good opportunity comes up.
You can also cold call to find an area agent. If you do, interview the agent to determine whether they have experience working with investors and if they are comfortable conducting business with you virtually.
Close the deal
You’ll close the deal virtually with an online deal using your e-signature on paperwork electronically sent to you from your agent. This is just as valid as sitting around a closing table and signing in person. Your real estate agent can help guide you through the closing process, making sure all the right documents are signed the proper way (some documents might still need a physical signature, so they can be shipped to you). Now your agent can attend the closing while you relax at home.
Although buying a home online will never replace actually setting foot in a property and being able to inspect the neighborhood on your own, it’s a practice many investors use to acquire rental property. Now that you know what it takes, you’re ready to begin a new business adventure.