An increasing number of real estate investors are looking to vacant and zombie properties as potential cash flow streams. As housing inventory continues to be low, bold developers and flippers are taking on older properties as investments, refurbishing them, and selling or using them as rentals.
This market activity means finding a good prospect will become harder as the market tightens. Here’s a look at why zombie properties are becoming more appealing, who is targeting them as projects for revival and restoration, and how you can find one if you fancy breathing life into what could be quite a monster.
What Is Vacant or Zombie Property?
The terms “zombie foreclosure” and “zombie homes” became mainstream around the time of the 2008 housing crisis. A zombie home is a property that is deemed vacant and is under the foreclosure process. So, a zombie home has a mortgage lien stuck in foreclosure — it is neither lien-free nor foreclosed upon. A vacant property, however, is an unoccupied home, whether due to abandonment or death.
Why does the bank not complete the foreclosure process for a zombie home? Sometimes, the bank may consider that the foreclosure process will cost more than they would make in selling the property.
Whatever the reason, in a zombie case, the homeowner often abandons the property, perhaps incorrectly believing they must move out after receiving a foreclosure notice that the foreclosing lender is now responsible for the property. These properties are sometimes vacant anywhere from four months to years. During that time, the home falls into disrepair, creates safety concerns, and negatively affects neighborhood values.
Taking On a Monster
You have to be brave to take on a vacant or zombie property. Many of these homes are left vacant for so long that the state of disrepair can be shocking. I recently talked to a real estate syndicator who, in his previous life, fixed and flipped distressed properties. He could wax lyrical about the horrors he encountered — trees growing out of gutters, hoarders, meth labs, flooded homes, vermin infestations, dead animals, concrete in the drains, black mold, caved-in roofs – things that would scare even the most stoic property investor. It was Halloween on steroids.
With such nightmare stories, one might think that taking on the challenge of a vacant property or zombie home might be something a developer might avoid, but the reality is the opposite. There is actually a trend where individual landlords are identifying uninhabitable houses, upgrading them, and putting them up as rentals.
According to Kurt Carlton, president and co-founder of New Western, a nationwide real estate investment company, housing inventory is insufficient, and investors are taking advantage of the increase in demand and looking for vacant properties to rehabilitate for sale or rental.
According to Carlton, there are around 25 million homes in the United States aged between 20 to 30 years that need renovation. These properties can sit on the market, so they represent an opportunity for property developers to buy them up cheap, renovate them, and sell or rent them at a profit.
Investors and developers inclined to take on the challenges of a vacant property may see significant returns from a single-family home. If they fix it up as a rental, there are homebuyers who would rather rent as they wait for mortgage rates to drop and inventory to pick up. If they choose to sell the property, Gen Z buyers will purchase investment properties in more affordable cities, increasing the demand for single-family homes.
Zombie properties can be hard to find. They are off the market, and their owners may not realize they still own them. Consequently, if you find a vacant or zombie property, less competition may allow you to buy at a discount. But how do you find them?
Finding Vacant or Zombie Properties
ATTOM reports that in the second quarter of 2024 (the most recent quarter data are available), there were 6,945 zombie properties.
These properties are still off-market and not easy to find. Here are some ways to find them and what to do once you have identified a property.
- Reach Out to Your Real Estate Community
Local real estate and businesspeople are in the know. Having a good relationship with local real estate agents, tax professionals, property managers, and lenders could mean that you get a heads-up on properties that are in pre-foreclosure and might become vacant or zombie properties.
- Subscribe to a Real Estate Data Provider
A real estate data provider can provide lists of properties in foreclosure. Some of these data sets also show whether a property is vacant and can be available at various geography levels.
- Contact the Homeowner
ATTOM’s property ownership data will show the homeowner’s name. Once you have targeted a property, contact the current owner to see if they are willing to sell. The owners may be unaware that they still own the property, so have documents to show their ownership status and to help with the negotiations.
- Position Your Offer
A zombie property could become a liability for the owner, so position your offer as one that will relieve them of a potential problem.
- Due Your Due Diligence
Verify ownership by running a title search before closing the deal. Also, look for outstanding liens or tax obligations that might complicate the deal. Lastly, schedule a home inspection and a professional appraisal so that you are aware of the state of the home and the repairs and maintenance issues you are taking on.
Is a Zombie Reawakening for You?
If you are a keen fixer and flipper or an investor with resources, you could do worse than take on a zombie property. Many investors are taking advantage of single-family homes that need refurbishment.
Search well and do your due diligence, and you can pick up a property well below market value and turn it around for a good profit. Just be sure you have the resources available, a competent team in place, and cushion your budget to cover any unforeseen events that might derail your project timeline.
