How Can I Buy an Abandoned, Derelict House?

Abandoned and derelict houses can be ideal investment properties, though some work will be required.

Houses will sometimes be abandoned by their owners. Such vacancies are often the result of personal bankruptcies, foreclosures, contentious divorces, or unexpected deaths. The result? Almost every neighborhood in America likely has at least one house that appears to be abandoned by its owners, often unkempt and desolate.

These houses can be ideal investment properties. They are often not being actively marketed, and thus might be sold at prices substantially below market price. Not only do they lack a seller who seeks to negotiate, but they also tend to be the very opposite of move-in ready, which is what many prospective home buyers want.

The downside is that you may need to invest substantial time and money into the property. Of course, that means you can dramatically increase its value after you do so. As a result, many buyers who seek to "flip" houses (improve their value and resell them for profit), as well as buyers who enjoy the idea of spending time on their new home, love to buy abandoned properties.

What should you consider before purchasing an abandoned property, and where can you find them?

Considerations When Purchasing an Abandoned Home

Buying an abandoned home is not for everyone. Such homes are likely to have numerous physical issues that will require time and money after you close on the property, in amounts that might be hard to predict. In practice, this adds several considerations.

First, you might not be able to move into the home until many months after purchase, if it has structural or safety issues that require construction. Even if it's not physically impossible to move in, your mortgage lender, if you have one, might refuse to fund the purchase loan until the home (it's "collateral") is made habitable.

Second, you might need to invest substantial money into repairing any damage and bringing the property into compliance with the local building code.

Third, you might need to invest your own time and energy into various repairs—negotiating with contractors and subcontractors, supervising construction, and dealing with local inspectors.

Many buyers are simply too busy with their own lives to devote such substantial time into their property.

How to Find Abandoned Properties

How can you find abandoned properties? Needless to say, they are unlikely to be posted on the windows of fancy real estate firms or advertised in the newspaper's real estate section. These properties are ordinarily not so photogenic, and lack the traditional motivated seller who finds a broker to list the home.

However, it is not impossible to find abandoned properties, usually with the help of local banks or local government officials. After all, abandoned homes are bad for both financial institutions and municipalities.

Local governments typically do not want vacant homes within their jurisdiction. These properties often fall into disrepair or attract squatters. They also lower the number of residents paying property taxes, affecting the municipality's potential income. Worse yet, they tend to look shabby, since no one is mowing the grass, pruning the shrubs, picking up garbage or flyers, or otherwise maintaining them, thus depressing the real estate market surrounding the abandoned home. And banks do not want these properties on their books, especially if a borrower has defaulted on the mortgage.

If you know the neighborhood, you might be able to find an abandoned property through simple visual inspection. You might be aware of a home where the weeds are overgrown and the mail has accumulated.

Once you find the address, you can go to your local county assessor's office (sometimes called a county clerk or municipal property manager) and ask to see the property records associated with that address. These are generally public documents, which will give you information about the last owner.

You might discover that the owner simply has multiple homes, and has left this one vacant without the intention of abandoning it. In this case, you may seek to contact the homeowner directly with an offer of purchase.

Alternatively, you may discover that the owner has not paid property taxes for years, and is nowhere to be found. Perhaps civil or criminal proceedings are pending against that homeowner. In these situations, the local or state government may have taken possession of the property and offer it for sale.

Banks are another useful resource. If a property owner has abandoned a home, it is likely that the person had a mortgage that he or she couldn't afford. In such a situation, the bank that issued the mortgage might have initiated a foreclosure proceeding in an attempt to recapture ownership of the property with the intention of reselling it. Banks will often maintain lists of foreclosed properties that are available for purchase, often as a substantial discount below market value, as the bank is attempting to cut its losses on the property.

If you are interested in purchasing a home in a particular area, pay a visit to local banks and ask if they have any foreclosure lists or sales.

Beware of Latent Defects

Almost by definition, abandoned houses are likely to look a bit shabby from the outside. They probably lack a fresh coat of paint, might have overgrown plants in the yard, and might have obvious areas needing repair. But as a potential buyer of such a house, you should be far more concerned with the hidden (sometimes known as "latent") defects.

A latent defect is one you cannot easily see with your own eyes. Abandoned houses might have significant structural damage and rot, outdated electrical or plumbing installations, termites or other creatures living inside, stolen copper pipes and fixtures, and rampant asbestos in the ceilings and walls.

Hiring a certified home inspector is critical before any home purchase, but for two reasons, it is especially critical in the context of an abandoned home.

First, in normal real estate transactions, most states require home sellers to provide written disclosures about various known defects on their property. While these disclosures rarely reveal all of the issues with a property, they give buyers important data and a road map to finding potential problems.

Needless to say, if a home is abandoned, there is no one to provide you with disclosure forms. (And of course, you will not be able to sue the seller for undisclosed defects, as you would in a standard purchase).

Second, abandoned properties are more likely than other properties to have latent defects, even if the "price is right" and you believe you are getting a good deal. No one has cared for the property for some time.

Buying an abandoned or derelict house has its advantages, but such properties will almost certainly require significant renovation and maintenance after purchase. A thorough inspection will provide you with a concrete sense of the problems, including the estimated amount of money you might need to invest into the property after closing.

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