Red Flags to Look for When Buying an Investment Property
When it comes to buying an investment property, some flaws can mean the difference between a lucrative deal and a nightmare. If you’re buying an investment property, pay attention to these red flags to make sure you make the right choice.
High Crime Zones
Areas with high crime tend to have some of the lowest rent rates around. The low rent rate makes it impossible to afford any necessary repairs to a building. In addition, areas with crime are less safe and can scare a great plenty of potential tenants from moving to these areas. Some of the tenants in high crime zones also either have difficulty paying for rent or are more likely to cause damage to a unit.
Inappropriate room placements are annoying to tenants. Some of the layouts can make no sense and inconvenience the people living there, such as a garage only accessible through the bedroom, a bedroom only being accessible through the kitchen, or so many more bizarre layouts. Some of these placements are fixable via tearing down or building a wall. However, these are unnecessary maintenance costs that have very low ROI and are probably not worth the price.
Lack of Information
Make sure you ask the seller about hard facts, such as neighborhood appeal, the rates of rentals vs. vacancies, year-to-year profits, and hard numbers. If the seller lacks clear answers or relies on guesswork, then the success rate for rentals in the building is most likely low. If you are not satisfied with the answers, simply move on to a more profitable option.
It is usually recommended to invest in an area that is either already popular or rising in popularity. Neighborhoods that are known for being unsafe, filthy, derelict, deserted, or in the middle of nowhere, on the other hand, will have those reputations stuck to them for a long time. You will have difficulty finding tenants and therefore, making up for the costs.
Too Much Maintenance
Some properties have issues that cost too much to fully repair, such as significant structural damage, mold, or overall signs of decline and neglect. For these properties, you will likely spend far more in maintaining and repairing these units than what you are able to make up for in profits or rent.
Make sure to run the numbers on a specific property. If you cannot see any possible way to make money from the investment, or your expenses will outweigh what you project to gain, then this property is not worth it.
Learn more about how Home365’s maintenance services can improve your property management process.