Investing in real estate can lead to a nice payday, but it’s crucial to do your homework before diving in headfirst. As an investor, it’s important to know when it’s time to walk from what may initially look like an attractive purchase. Here are a few red flags to keep on your radar.
A bad neighborhood is one of the biggest red flags for the simple reason that you can’t renovate your location. While you can change nearly everything about a property, you just can’t change its surroundings.
The whole idea of buying an investment property is to purchase something in a hot or up-and-coming neighborhood as opposed to an area that’s declining. If the property is positioned in a location with high crime rates or a failing school district, the price needs to be very enticing – otherwise, you won’t make your money back.
Be careful of a property that requires an abundance of maintenance. If it’s been neglected for too long, it may be more trouble than it’s worth. Factor in enough to cover unexpected rehab expenses. If there’s one thing for certain, something will always come up in the construction process.
Keep your eyes open for details like water damage, for it could be a sign that major repairs are needed. If the property’s HVAC unit is old or has been recently repaired, you’ll want to factor in the cost of a replacement.
If you aren’t allowed to see inside, it’s probably a good indication something is very wrong. Unless you’re buying a property at auction, it’s rare not to tour your potential investment.
Finally, don’t forget to do your homework. If the seller can’t provide you with statistics on items like vacancy rates or year to year profits, it’s a sure sign the success rate for rentals in the building are low. Never enter a deal blind.
Are you a real estate professional looking for representation in commercial transactions? Caiaccio Law Firm’s clientele includes commercial and residential developers, sponsors, investors and lenders. Our firm’s experience in commercial real estate transactions covers property types, including multifamily, single family, retail, hotel, and office properties. We have a specific concentration in representing multifamily operators, property management firms, and commercial developers.
About the author
Melanie Tate is a J.D. candidate at Emory University School of Law. Melanie earned her B.A. in literature from Louisiana State University. She is a 2019 – 2020 legal intern at Caiaccio Law Firm.