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5 Red Flags to Look for in Real Estate Investments

Depending on the circumstances, real estate can have enormous investment potential or be a complete disaster that drags you down financially. The key is knowing when a property has potential or screams disaster. Fortunately, there are some red flags you can look for to help you figure it out.

No hard data

If you’re buying an investment property to rent out, you’ll want details about the neighborhood. How many other homes are rentals, how many are vacant, what’s the crime rate, etc.? If you can’t get these details from the seller, consider it a sign that the neighborhood probably isn’t one you want to invest.

The math doesn’t make sense

You want to make money on this property. Naturally, you’re going to try to talk the seller down on the price, especially if it’s been on the market for a while. If they refuse to budge, ask yourself why. If the price is already higher than you’d expect, and they’re not budging, you should walk away.

High maintenance

On paper, it looks like a significant investment. But when you look at it with your own eyes, you see all the investments you’d have to make in repairs and upgrades before you could even begin to turn a profit. There’s nothing wrong with making a couple of repairs or updates to a new property. However, if there’s a lot of work to be done (especially if it’s work that’s not included in the advertisement), it’s probably not worth your time or money.

Bad or poor neighborhood

It might be a high crime rate. Maybe it’s bad schools. Or maybe it’s a neighborhood that’s in a very rural area with a long drive to anything. Whatever it is, if the neighborhood has a reputation for being unsafe, bad, or otherwise undesirable, that reputation won’t go away anytime soon. You can’t throw enough money at that property to make it worthwhile.

Government is not landlord-friendly

They may require annual inspections, special permits, or have created eviction laws that are so strict that you practically can’t evict a problem tenant. Whatever it is, it may be more hassle than it’s worth.

A qualified real estate lawyer can also help you with all of these red flags. Hiring a good lawyer can ensure that, whether your gut tells you something’s wrong or not, you don’t end up getting in over your head.

 





2 responses to “5 Red Flags to Look for in Real Estate Investments”

  1. Very great post. I simply stumbled upon your blog and wanted to say that I have really enjoyed browsing your weblog posts. After all I’ll be subscribing on your feed and I am hoping you write again very soon!

  2. dividendgeek says:

    Nicely put. Agree with all your points. One addition is taking into account family changes. Typically the first step in having a family is buying a home. Raising a child is expensive, that should be taken into account before deciding the $ that can be spent on mortgages.

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