Not all investment opportunities are good real estate deals. That's something all real estate investors know, but regardless of your experience level, it can be challenging to discern profitable ventures from money pits.
You can find great investments by examining a property's best features and noticing its red flags. Here are a few that you shouldn’t miss.
1. High Vacancy Rates in the Area
No matter how good a residential property is, the investment may not be worth it if there is low rental demand in the area.
You can easily learn this by exploring the rental market or chatting with local real estate agents, helping you to make well-informed decisions.
2. Poor Location
It's not just about being near amenities like public transportation. You should also look for signs that the neighborhood is thriving or declining.
A bad neighborhood could lead to lower property values, as well as difficulty in finding tenants. The signs can include:
- Abandoned buildings
- Poor infrastructures
- Lack of local businesses
- High crime rates
3. Zoning Restrictions
If you intend to turn the investment property into a rental, ensure that it follows the local zoning laws.
Nashville has specific zoning districts that only allow certain residential property types, while others permit both short-term and commercial use.
4. Unresolved Legal Issues
Research the property's ownership and history to prevent hidden issues, such as outstanding balances, legal disputes, and missing permits, from occurring after you purchase it.
Missing these red flags can cost you and affect your property value when left unresolved. Hiring a reputable title company can help you ensure that the property's title is legitimate and free of issues.
5. Short Sale
Be cautious of short sales or distressed properties, as they may hold hidden problems.
While house-flipping is all the rage recently, the last thing you need is to pour more cash into a real estate investment for repairs and renovations on top of the purchase price.
Do your due diligence and conduct property inspections to ensure that the investment property is worth the cost.
6. Recent Fixes
It's easy enough to cover real estate red flags with a few cosmetic "upgrades." For instance, the seller might've applied a fresh coat of paint to keep more serious problems from potential buyers, like mold or water damage.
A fixer-upper property is one thing, a home that poses health risks is another. The best thing to do is move on to the next deal you can find.
7. History of Neglect
Perhaps one of the most common red flags you can find is the signs of neglect in a property. They are usually visible like peeling paint, water damage, weak structural integrity, and more.
A well-maintained property means fewer costs to get it ready for renting, whereas ignoring these real estate red flags can end up costing you tens of thousands of dollars to fix.
8. Natural Disaster Risks
Since Nashville is prone to natural disasters like storms, tornadoes, and flooding, check whether the location is severely affected by them.
Staying aware of common challenges like these can both prevent excessive property damage as well as protect your tenants.
How Can You Protect Yourself From Bad Deals?
Hire a Professional
A real estate agent or property management company will know what to look for and market factors to consider to determine whether it's a good deal.
For instance, they can see through the strategic explanations of listing agents when trying to close the deal.
Require an Inspection Contingency
The contingency is a clause in the purchase contract that allows the buyer to have the property inspected within a timeframe.
If issues are found, you can either negotiate repairs or cancel the contract entirely to avoid paying for additional costs.
Conduct Local Market Research
Through meticulous research, you can learn whether there is a high demand for rentals and if the property will be worth investing in.
You can even consult other agents to see whether there are other owners who are selling the property.
Find Listings Through Reputable Sites
Some investors turn to online listing sites to look for houses they can purchase. If you use this method, be sure to only look into trusted sites.
Some sites screen listings carefully to avoid scams and bad sales. In a way, they will be doing your research for you.
Real Estate Investing FAQs
What should I consider before purchasing a rental property?
- Crucial factors to consider include location, property condition, cash flow potential, appreciation potential, and legal aspects of the ownership and sale.
What is the biggest red flag I should look for?
- The most critical aspect to watch out for is the legitimacy of the title and the ownership of the property. If the seller doesn't have clear legal ownership, the entire deal will be compromised.
The seller refuses to provide documentation. Is this a red flag?
- Yes. Providing legal documentation is among the basic necessities when closing a real estate transaction. Refusal to do so is a major red flag.
Can I buy properties priced above my budget?
- Investors are usually advised against this, and for good reason. No matter how good the rental market looks, showing potential for high rental income, it can be disastrous if that doesn't end up happening. You will end up owing more than you earn.
Let Us Help Your Rental Business Thrive
After making the right investment decisions, you are still tasked to run your rental business to keep it profitable and maximize its potential. With a professional like Green Tree Property Management by your side, you can become a stress-free landlord.
We specialize exclusively in property management, and a full service includes marketing, tenant screening, rent collection, maintenance, accounting, and eviction.
As you earn passive income, you can focus on expanding your real estate portfolio and earning more rental income.
If you have more questions, feel free to contact us!
