Of all the real estate investments you could make, an unfinished home is one of the riskiest. But in the right circumstances, it could also be easy money.
An unfinished home is just that: a house that was under construction and the construction was abandoned before completion. Unfinished homes could be nearly finished, barely begun, or anywhere in between.
Is this a purchase you should consider?
Benefits of Buying an Unfinished Home
Why purchase an unfinished home? There are several potential benefits:
- The price will typically be extremely low. In some cases, you may even be able to buy the entire property for less than the lot alone would sell for.
- If the home is nearly finished, with the roof, windows, and doors already in place, it may be completable without much more investment.
- If the work is barely started, you could potentially bulldoze the construction and then sell the property to turn a profit.
Risks of Buying Unfinished Construction
There’s a lot that could go wrong with buying an unfinished house. Discretion is necessary.
- If the property has been abandoned for a long time, it may be an absolute mess inside. There could be animal life or even squatters in residence.
- The realistic market value of an unfinished house will drop rapidly the longer it’s been abandoned and unkempt.
- The costs of dealing with it – finishing or demolishing – may ultimately eat any profit you could have made.
Other Factors To Consider
What should you examine when deciding whether a particular unfinished property is worth the investment?
Climate
The hotter and drier the local environment, the less damage will be done to the extant construction. Buying unfinished homes in a wet climate is rarely a good idea because they deteriorate quickly.
Property Valuation
Often, tax assessors will make an initial valuation based on what the value would be if the house was finished. For example, it might be worth $100,000 on paper, but only a tenth of that in reality. This could be an advantage or disadvantage, depending on your situation and goals.
Flipping
It’s tough convincing people to buy an unfinished home. Think about whether you can realistically make a profit.
Unfinished houses can be a high risk/high reward investment. In the right situations, you could get a property for a song and quickly flip it for a profit. But you could also just as easily get stuck with a costly and rapidly deteriorating encumbrance.
