Tips for Buying an Investor-Owned Home in Phoenix
Phoenix has a lot of flipped houses — homes that are bought by investors and sold within six months, usually after renovations, according to a report from RealtyTrac, a real-estate data company.
In fact, Phoenix ranked second in the nation for the largest volume of “flips” during the first three months of 2014, RealtyTrac says.
‘Open the Dishwasher’
Like any home purchase, buying an investor-owned home requires diligence, Phoenix real estate agent Stacey Lykins says. For one thing, she says the quality of renovations can vary dramatically.
“Look at the history of whoever is doing it,” she recommends.
If a company has completed the renovations, homeowners can check with the Better Business Bureau to see if any complaints have been filed. Options for checking the backgrounds of non-institutional investors are more limited, but Lykins says a home buyer can determine quality craftsmanship by examining the home’s finishes. For example, Lykins says she toured an investor-owned and renovated property in her neighborhood that had a $1.4 million price tag but lacked attention to detail.
“You open the dishwasher and it wasn’t set properly,” she says. “You’ll just tell by the finishings if it was done properly.”
For home buyers who are not construction-savvy, the home inspection becomes even more important. Lykins says a good home inspector will look for possible defects in workmanship and alert the home buyer before it’s too late.
A benefit of buying an investor-owned home is the potential for everything inside — including appliances — to be new, Lykins says. Investors in the Phoenix suburb of Scottsdale spent a median $14,772 from January 2011 to March 2014 on upgrading homes, according to RealtyTrac. The investment ranked second-highest nationally.
New appliances and fixtures typically come with manufacturer warranties, Lykins says. Nevertheless, she recommends purchasing a home warranty, especially since sellers often pay for the coverage. A homeowner’s warranty is a contract between a homeowner and a home warranty company. Its coverage can vary, but typically it provides discounted repair of major components, like plumbing, and major appliances, such as washers and dryers, according to Investopedia.
Another item homeowners should be aware of, Lykins says, is the Seller Property Disclosure Statement. This document, mandatory under Arizona law, requires sellers to disclose information ranging from scorpion sightings to known structural damage. Because investors haven’t lived in the property, they may lack knowledge about potential problems.
Get a CLUE Report
To compensate for the missing information, Lykins says home buyers should ask the home seller for a CLUE (Comprehensive Loss Underwriting Exchange) report, which details all claims made on the property in the past five years.
Lykins says home buyers don’t have to worry too much about overpaying for an investor-owned home. Banks will require an appraisal before approving a loan, which protects buyers from inflated pricing.
“Some [investors] do try and overshoot the market,” she says. Nevertheless, pricing is always determined by what the market will bear, she adds.
Federal Housing Administration (FHA) loan seekers take note: The agency has been issuing yearly waivers for buyers looking to purchase investor-owned homes, but the agency says that could change depending on market conditions. The most recent waiver lasts through Dec. 31, 2014, according to the Federal Register.
Starting in 2003, FHA stopped securing loans on properties the seller owned for less than 90 days because of artificially inflated home prices, according to the agency. However, since 2010, FHA has issued a series of temporary waivers for the rule to encourage the rehabilitation of abandoned homes, according to the Federal Register.
Check with your lender for the most up-to-date information.