Today I’m hosting a post from Jennifer Riner of Zillow. I’ve already got one investment property but I’m always looking for another 🙂
Investing in rental homes proves quite lucrative for smart investors who diligently vet out potential properties prior to making offers. But not all investments turn out profitable, especially for first-time buyers unaware of common deterrents.
Consider the following five red flags before making a real estate investment.
1. Bad Location
Location is arguably the most important factor of a real estate purchase. Landlords can perform structural upgrades, redesign interiors and overhaul poor landscaping – but location remains the same. Therefore, it’s important to purchase investment properties in good locations, preferably catered toward a specific group of tenants. For instance, landlords aiming for families should assess GreatSchools ratings before purchasing homes or multi-family properties. Investors purchasing high rises for young professionals might benefit from a nearby bustling night life, and WalkScore can help identify central locations. Landlords can also narrow down where to invest by observing city-specific rental markets. Zillow’s rental data allows users to evaluate median rents in all major metros. Atlanta rentals, for instance, have a median list price of $1,210 for one-bedroom apartments. Investors hoping to price single bedroom units significantly higher than the median list price might want to rethink those locations.
2. No Documented History
Rentals with successful track records help investors determine popularity, competitiveness and potential pricing options. Assuming a stable market, buildings lacking vacancies with steep price points are usually safe bets for new investors. However, peace of mind comes at a high price. Popular rentals on the market are likely situated in prime locales with modern upgrades, and list prices reflect those factors. At the same time, negative rental histories are red flags for investors looking to acquire new properties. Investors assume the lowest risk by purchasing higher priced properties with stable rental income. Alternatively, inexpensive properties with few tenants have great potential with proper marketing and unit renovation.
3. Extensive Maintenance Issues
Avoid buying investment properties without hiring qualified inspectors to review them first. However, investors can look for the obvious indicators of expensive maintenance issues before paying for expert analysis. Watch for sloping yards that usually indicate basement flooding; plus leveling the landscape can be costly. Cracks and bulging in foundations show structural issues. Faulty switches, flickering lights, hot faceplates and broken circuits all relate to potential wiring problems. Nonfunctioning windows, bugs, water stains and musty smells are additional warnings when touring potential investment properties. While repair costs are difficult to accurately estimate, small fixes can add up quickly. It’s important for investors to factor potential repair costs into their business budgets.
4. Stale Listings
Most investors shy away from listings that sit on the market for extended periods of time. High-quality buildings at fair prices usually sell fast. Online search tools like Desert Mountain Real Estate Experts let users know when sellers initially post their properties, and it might be worthwhile to vet fresh listings before other investors make offers. Depending on the time of year, buyer demand varies and it’s common to see properties sitting on the market for months in less competitive regions.
5. Bad Reviews on Previous Property Managers
Even if management has changed, negative reviews on multi-family apartment buildings can haunt future investors and diminish their potential profits. Check reviews online before visiting open houses to gauge their veracity. Maybe past tenants encountered unique situations unrelated to facilities or neighborhoods. Even so, keep past complaints in mind when attending walk-throughs – drawbacks become more apparent once investors are attentive to them. To evade money pits, it’s critical to be observant throughout the process.
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Even the most diligent investors inadvertently purchase unprofitable real estate.