What is Replacement Cost Value Insurance Coverage?
What is replacement cost value? Learn what replacement cost value is, how it may relate to your insurance policy, and how it compares to other insurance options.
Purchasing a vacant building can be a path toward earning a good return on your investment with the added benefit of helping to improve a community. But it is important to inspect the property for any structural or maintenance issues before finalizing the deal.
Vacant properties often are not being cared for properly, which could mean the owner is not interested in keeping it and is motivated to sell. This also indicates the property might be sold below market value.
Additionally, investors might be able to use unconventional financing methods to purchase the property, such as seller financing. With seller financing, the buyer can pay the seller over time rather than taking out a mortgage from the bank. It can benefit the investor because the seller might not be as concerned about financial history and loan eligibility as a bank.
However, seller financing might require payments sooner and could have a higher interest rate. For owners, seller financing can be a way to gain passive monthly income.
It is a good idea to get an inspection of the property before buying it. A property sitting vacant for an extended time might have issues such as rodents or bug infestations. Other maintenance or structural issues might also be found which would need to be addressed.
For example, vacant homes are prone to leaks due to dried out plumbing equipment. If possible, turn on the property’s utilities before the inspection. Insurance companies also might want to inspect the property before issuing a policy.
Keep in mind that you should budget for needed property updates. Formerly vacant buildings often require more future maintenance or repairs than newer or other well-maintained properties.
You can keep an eye out for property listings for vacant property, but you can also scout around yourself. Vacant homes often are neglected. By taking a drive around your community, you might notice some homes with overgrown lawns, broken windows, or chipped paint, suggesting it might be vacant. The owner of a vacant property might not live in the area, making it difficult to perform upkeep on the home.
You can check with neighbors to inquire about a property or see if the local post office is notified to stop delivering mail to the building. Note that vacant property with a legal notice might mean the property is in foreclosure and was abandoned.
Locating the owner of a vacant property might be more difficult. Options include leaving a note on or under the door. You can also let neighbors know you are interested in purchasing the property and ask if they know how to contact the owner or may contact the owner for you. Another option is looking up public tax records.
If you do not find any vacant buildings while driving around, you can check local ads for any vacant property listings. Another possibility is noting estate sales and contacting the owner to find out plans for the residence. Local real estate agents also might know where vacant properties are as they may be adjacent or near one of their listings.
There are several benefits to buying a vacant building. Not only can it be a good investment, but it also can positively impact the surrounding community.
Vacant properties are often linked to criminal activity, including arson and vandalism, which can decrease property values for nearby homes. Local government officials or residents often look to reuse the vacant commercial or residential properties for something productive, such as a community garden.
But returning the property to an occupied home or business is ideal to ensure the property remains properly maintained. Once you invest in a property, any improvements made will increase the property value.
Owners of vacant properties might be motivated sellers who want to unload the real estate. In this case, real estate investors might be able to buy the property for below market value. Any needed renovations or repairs needed could boost property value and return on investment (ROI) over time.
Whether you are investing in vacant residential or commercial property, it is advisable to check the local market for what average returns are on similar assets.
Purchasing a vacant property can return it to being a productive asset within a community, benefiting area property values. It also can enhance the quality of life in a neighborhood. Vacant buildings tend to be eyesores that are poorly maintained, collect debris, and attract criminal activity. Further, if there are several vacant properties in a neighborhood, it can signal community distress and discourage outside investors.
Vacant and abandoned buildings also do not generate property tax revenue and can be costly for a community to police and keep clean. Community leaders often look for ways to reuse or redevelop vacant or abandoned properties as an economic development strategy. Buying and enhancing formerly vacant buildings helps to improve the community overall.
Investing in a vacant building can be a way to secure a property for below market value. Making improvements on the property also offers an opportunity to boost property value and your ROI while also bettering the surrounding community.
For more information on vacant buildings and other CRE topics, check out our Insurance Term Glossary.