Red Flags to Avoid when Buying an Investment Property

Insiders Secrets for Buying an Investment Property Series

As we all know, mistakes happen. This is part of life. But one mistake that can be fatal to your real estate business is choosing the wrong property.

Picking the wrong property can be a lot like picking the wrong partner or spouse. It can be incredibly stressful, expensive to get out of, and detrimental to your overall well-being.

Let’s examine a few things to avoid when looking for a rental property. This isn’t to say that you should never buy properties with one of these issues, but you’ll want to make sure the upside outweighs these problems and you’ll need to factor them into your numbers!

The Neighborhood

Neighborhoods can be tricky, particularly in an area with such high demand, as we have across the Wasatch Front & Back. The growth of our area in the last 5 years has changed the “areas to avoid” drastically, but there are still pockets of “high-crime” you want to – ideally- steer clear from.

While you may not have trouble placing tenants into a property in a Class D neighborhood, you will most likely see higher rates of late rent, more damage to your property, and less property appreciation over time.

You cannot easily fix a neighborhood, make sure you are factoring in the higher rate of vacancy and repairs when running your numbers.

Foundation Issues

Foundation issues can be money pits to fix, and the cost of a solution can sometimes eclipse six figures. This is especially true with foundation issues on a house with a basement or slab.

You can also include in this category, any property that has water leaking in the foundation. Just steer clear. Yes, there are real estate investors out there who specialize in properties that have bad foundations. Unless you have extensive experience in this area, consider the risk too great.

Shared Driveways

This one may surprise you, but the concept of avoiding shared driveways will apply to avoiding other “shared” spaces. While the property line is going to split right down the middle, shared driveways or other shared common spaces, will often have no physical barrier. The neighbor your property is “attached” to can easily affect your bottom line if they happen to be a yard, driveway, or common area hoarder. This can make your property look like an eyesore, causing it to be difficult to rent out.

Many properties that fall into this category will have an HOA, making this a non-issue. But if you’re looking at a property that does not have built-in rules and regulations that keep your common areas up to par, avoid placing so much of your properties appeal in someone else’s hands.

There is no set rule as to what makes a perfect rental property. Instead, the perfect rental property is one that helps you achieve your goals. Period. Buying the wrong deal will take you further from those goals.

This list of red flags is not designed to outline exactly what you should and should not buy, but rather, help you narrow your buying criteria down so you can focus on hunting for only the best properties and avoid potential mistakes.

Next up in our Insiders Secrets for Buying an Investment Property series we will cover – 4 Little-Known Property Hunting Tips. Lets make the process of finding your next investment property easier.