Experts often talk up the blind dating of investment strategies – buying properties sight unseen. They say it’s the best way for investors to check their emotions at the door when making a purchasing decision. We reveal why they’re right, but how there are also risks that are not immediately obvious.
Buying property sight unseen is a strategy many property investors have used over the years to build their property portfolios, but it’s also one that continues to divide the investment community.
Proponents say it opens up your investment property search from those locations within a few hours’ drive to virtually every suburb or town in Australia. By taking out the requirement to actually view every property on your shortlist, your options are less restricted.
You can also make decisions based purely on facts and figures, rather than being swayed by insignificant aesthetics such as the condition of the carpet.
For this very reason, it’s a strategy Margaret Lomas, founder of Destiny Financial Solutions, highly recommends.
“The biggest mistake we make when we buy property as an investment is that we become emotional about it,” she explains. “We decide whether we like or dislike a property upon viewing it, and this can actually override common sense or true investment potential. What you like or dislike is not a valid set of criteria upon which to base an investment decision.”
Not only is this a strategy that Lomas would recommend, but it’s also a philosophy that she has followed herself. Lomas has amassed a portfolio of more than 30 properties over the years, and many of those houses and apartments were purchased sight unseen.
“When we buy sight unseen we are relying completely upon the data to make a decision, and we are more likely to do a lot more due diligence as a result,” she says. “I’ve bought plenty of property without viewing it beforehand, and when I subsequently looked at them, I realised I would not have purchased had I looked at them. They have all become excellent investments, which proves that my personal feelings have no place in this process.”
What could go wrong?
The biggest risk when buying sight unseen is that you might not get what you thought you were paying for.
Meighan Hetherington, director of Brisbane-based buyer’s agency Property Pursuit, has seen many buyers get burnt by bad purchases when they invested in property sight unseen and failed to do adequate research.
“In Queensland in particular, property law follows caveat emptor, which means ‘buyer beware’. So that means it is the buyer’s responsibility to do all their due diligence,” she explains. “If you don’t know the right questions to ask, you can end up in a lot of trouble.”
For instance, you might visit a real estate website and view photos of a property for sale. The backyard looks large and green, and overall the property looks well maintained. “However, there might be a high voltage power line running along behind the property, which is going to have a huge impact on its value,” Hetherington says.
“The agent is under no obligation to tell the buyer this unless directly asked, as their role is to sell the property in the best light possible without misrepresenting it.”
If you’re thinking of using this strategy, Lomas says the risks involved can be largely mitigated, provided you conduct extensive research and work with a team of qualified experts.
“As long as you ensure that you employ the right people to do things such as building and pest inspections, and find a good property manager to give you a brief habitability report, I see no dangers in buying sight unseen,” she says.
“Looking at a property cannot change its investment potential – it’s either a good buy or not, and you looking at it won’t alter this in any way.”
How to avoid a dud
Ian Macintosh, principal of Sydney buyer’s agency Searchlight Property, believes you’ll have the best chance of success if you go in with a game plan.
“You need to create an objective list of buying criteria upfront and assess each property against that criteria, rather than moving the goal posts part way through,” he says.
A detailed buying plan will act as your protection mechanism against buying a lemon, as it guides you through a process whereby you “objectively assess the viability of a property, without letting your personal impression of the property become a factor”.
“It’s also important to compare the property to similar, comparable properties that have transacted recently, so you can get an understanding of its true market value,” Macintosh adds.
It’s advice that his client, Debra King, took on board when she began searching for an investment property in Sydney. Debra and her husband live on the Central Coast, and they decided to engage Searchlight Property to source their next Sydney purchase on their behalf.
“Seeing the property ourselves introduces a personal bias and emotional attachment for what should ultimately be an investment decision,” Debra says. “So we sat down with Ian and agreed on our objectives in finding a property, and then let him do all the work.
“It works for us because we’re time poor and don’t live in Sydney, so for us to carry out weekly inspections of properties would be almost impossible. We also don’t have access to the research and data that Ian has as part of his business.”
There is one more step you should take to ensure that your sight unseen investment stacks up, says Ayda Shabanzadeh, managing director of Grow Consulting Group.
“It’s a good idea to get an independent valuation to ensure that you’re paying the right price,” she suggests.
“You don’t have something tangible to view, so it really comes down to the numbers. If it ticks all the boxes, then you should take a closer look and make your decision based on why you are investing, what your goals are and how this property might achieve this for you.”