Hello, Zillow. (Or Trulia if you’re super hip to the game.)
Party time! Ooooh, so many properties to choose from. Wherever do you start? Bets would say that you jump on Zillow and check out what is there. Or Trulia, or whatever. You do, don’t you?
I’ve had several people present me with Zillow properties, asking my opinion on whether I think they’re a good deal or not. When this happens, a plethora of questions and/or thoughts go through my head in an attempt to ascertain whether or not the property might be a viable investment opportunity. I thought it would be good to just spill out the questions I often ask and the thoughts that go through my head when I’m looking at a Zillow property, so if you are in the boat of searching these sites for potential investment properties, you too can ask and look for the same things.
Consider this a verbal vomit of thoughts. I’m listing these out in no particular order — no one thing is necessarily more important than another (unless I note that it is).
5 Factors to Investigate BEFORE You Buy That Property You Found on Zillow
Properties listed on these big national aggregate sites are most often properties from the MLS. I am of the understanding that at least Zillow may be sourcing properties from non-MLS sources so they may not all be from the MLS, but I’d bet most are. The reason this matters, to me, is this — depending on the market, at the point a property is listed on the MLS, it’s very possible it’s not a good deal. The reason being that experienced investors know how to find properties before they even hit the MLS, so at the point a property does make it to the MLS, it’s possible that infers it’s been passed up by several experienced investors already.
Again, this is market dependent. If you are looking in a hot buyer/investor market, I’d nearly guarantee anything on the MLS means it has been passed up by experienced investors already. Sometimes those sneaky good deals will make it to the MLS, but in these investor markets, they will likely be grabbed up in less than 24 hours of the listing.
In less popular markets, there is still hope that an MLS property is an ok deal. But at least consider the possibility of it not being one, especially in looking at how long the listing has been active. Remember too that these aggregate sites have a fairly significant delay in advertising properties from when they actually become available on the MLS. So that doesn’t help much in terms of timeliness being oftentimes critical for the best investment properties.
This one is relevant whether you are looking at properties local to your area or non-locally. If you are local to the property, you may not have to find the answers to this now because you might know them already. But you need to know the market fundamentals — always. Is the area you are shopping in growing or declining? How will the tenant pool be? (Tenants can cost a property owner a fortune.) All of these things can dramatically impact the return on a property you buy.
Now, here’s the trickster that even I have run into. I have looked at properties from Zillow, and even just from the MLS directly, in areas of cities I was very familiar with so I thought I had a good grasp on the viability of the area the property was in. But then, I’d go check out the property. I mean, it is literally down to the street that a property’s location matters! Everywhere around where these properties were was pretty decent, but then out of nowhere, there was this little pocket of absolute disaster — back to back streets of vacant properties, totally sketchy area, and no potential for good properties whatsoever. And that was in a market I thought I knew very well!
So the problem with individual properties listed on Zillow and those guys is that you have absolutely no security as to where the properties are actually located. When I buy turnkey rental properties, I don’t necessarily feel like I have to go visit the property directly, but most certainly if I’m considering an MLS or Zillow property, I would never buy it without actually going to it. You just never know. Location is so key.
Condition of the Property
Also key — and something that is rarely guaranteed no matter how nice the pictures look — is the condition of the property in question. It’s amazing how nice pictures can dress up a property and make it look drop-dead fantastic. A property could be in shambles, and you would never know it just based on the Zillow listing. On the most basic level, just looking at a property in person, can tell you a lot.
On the more advanced level — and this is for any property, not just Zillow properties — don’t ever buy anything without getting a professional home inspection done. You just never know, and having major repairs pop up unexpectedly can cost you your investment. It’s amazing how many people put lipstick on a pig and then use an MLS or Zillow listing to try to snow you! Maybe they aren’t doing it intentionally, but it doesn’t matter — this is your investment.
Never, ever, ever trust your perception of a property’s condition based on the listing. This is true to the MLS, but especially with Zillow or Trulia — they really are now putting properties on there from non-MLS sources. Man, does that open the door for some pigs to be listed. Be smart!
This one is interesting. Maybe it’s because Zillow so nicely provides you with so many numbers in their listings. I also love seeing when a listing tells you what the cap rate or return on your investment will be if you buy that property. Please, whatever you do, don’t trust that number. Do your own calculations. Even with property taxes and insurance and all that — please don’t go off estimates.
Find out what the actual numbers will be. The only numbers you can’t get actuals for are repairs and vacancies, so for everything else, please, don’t talk to me until you can tell me the actuals. I’m not going to make a judgment when the only numbers you give me are estimates. Then, the underlying message here with numbers too is that you need to make sure you know how to calculate them in the first place. If you haven’t a clue on how to do that, check out “Rental Property Numbers So Easy You Can Calculate them on a Napkin.”