Successful real-estate investing starts with the right property. While virtually any property could become a money-generating, high-value asset, if you want the quickest, most reliable path to a steady income, you need to take your time. Above all, you need to be ready to pass on an investment property.
Making the decision to purchase or pass can be tough, but there are things to watch for. While none of these issues should automatically disqualify a property (an “as-is” property, for example, could be worth buying), they should make you wary.
And if you see more than one, you should be very skeptical about the purchase.
11 Signs You May Want to Pass on an Investment Property
1. Multiple Abandoned Houses in the Area
Many real estate investors, especially ones just getting started, often focus solely on their own property; they don’t take the time to look at homes surrounding the purchase, and they don’t bother to drive around the neighborhood to investigate.
This can be a mistake, as the nearby homes can have a strong impact on your rental income. Would you want to live next to homes with boarded windows and abandoned properties? It won’t matter how gorgeous and comfortable you make the house if the neighborhood is less than ideal.
2. Seller Wants to Offload the Property FAST FAST FAST
Investors can be so intent on getting rid a property fast, fixing it up, and flipping it for a profit, that they are sometimes sold properties that are not worth buying. The temptation for a quick profit can be massive, but if you feel that the seller is intent on off-loading the property as quickly as possible, be wary.
Of course, the property could be great, and the seller may just want to sell and move on. But you should still take your time, do your research. If it comes down to buy now or don’t buy at all, you should pass. Remember, there are always more options.
3. Being Sold “As Is”
“As is” simply means that no upgrades or updates will be made to the property by the seller. No wall repairs, no electrical upgrades, no window replacements…nothing. Of course, as-is properties can bring excellent deals, but there is a good chance you could be saddled with a property that will drain your property.
If you do move forward with an “as-is” property, get a thorough inspection and account for any issues on your purchase price. If the house is “as is” and seller wants market value, you may want to pass on the investment property.
4. Floor Plan Needs Significant Changes
Some repair and upgrades are easy and affordable. This usually includes cosmetic changes like interior wall paint or new flooring. But other issues are much more costly.
If the floor plan in a house needs to be changed, with new walls or stairways, it can mean significant costs, as well as more time before you can place the property on the market, so you may want to pass on the purchase.
5. The Foundation is in Disrepair
The foundation is another part of the property that can be extremely costly to repair. Foundations require massive digging efforts, and usually require the services of expensive equipment. Between material costs, labor, and simply prepping the site, it can cost tens of thousands to fix a foundation. Avoid a house with foundational repairs unless you get a seriously good deal on the purchase.
6. The Fixer Upper is Listed At or Above Market Value
If you are purchasing an investment property for a fixer-upper, you need to get the best possible deal. In general, fixer-uppers should be around 10% to 20% less than the typical market value for similar homes in the area.
If the property will be bought, upgraded, and sold as quickly as possible, you need to get a low price, so pass on properties listed at or near market value.
7. You Can’t Get Enough Information on the Property
Good investing is based on information, but if you are struggling to get the right information for a potential investment, you may want to pass.
You need statistics like rental vs vacancy rates, profit margins, and rent costs. If this information is not available, either because the seller doesn’t want to provide it or simply doesn’t have it, you need to step very cautiously before making the purchase.
8. The Area Has Complex Zoning Laws and Restrictions
You need to know that you can use the property as you wish. For perfectly legitimate reasons (in most cases), zoning laws and local regulations can restrict what can be built on the site or how the site can be used. Thoroughly research these issues so you don’t purchase a site that can’t be rented or developed as you desire.
9. The Rental Property is Not Cash Positive
The top reason to choose rental property over other investments is the steady flow of monthly income. However, if the costs, such as repairs and mortgage payments, are draining any profits, you lose this advantage.
Look at past rental cash flow to make sure you are purchasing a profitable home.
10. It’s a Good Deal, But You’d be a Remote Landlord
The further you are from a property, the harder it is to manage. Sure, you can hire management companies to oversee your property, and this can make ownership more convenient, but most investors prefer to be within a half-day’s drive or less.
Even if you are getting a fantastic deal, you may want to reconsider a purchase that would place you hundreds of miles from your property. Being a landlord is hard enough, being a remote landlord can be even tougher.
11. You Are Buying with Your Heart, Not Your Head
It’s okay to let your heart guide you, at least in part, towards your personal residence. But with investments, it needs to focus on cold-hard facts. Don’t let emotions cloud your choice, don’t buy an investment because the house is “cute” or you love the landscaping in the backyard. Only purchase with your head and you’ll be more likely to make a wise investment choice.
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