Five Red Flags to a Bad Property Investment

Consider the following warning signs when buying property

In order to remain a successful real estate investor, or to get a decent return on investment from your very first apartment investment, your job is to make a decent passive income.
Now a passive income occurs when you make money by not putting in a lot of upfront investment, effort, or time. For example, with property investment you make money off your tenants rent payments (they pay off your mortgage, property taxes, and provide you with a small income).

As a property investor who owns a variety of rental houses, condos, and a few larger apartment complexes, I used to deal with my own building management, but now, I’m in a spot where I’m making a lucrative passive income and leaving my property management operations to a full time employee. Today, I focus mainly on making the deal because that’s where my true strengths are.

Obviously, I’ve learned a few lessons when buying property and today I’d like to share with you the five common red flags to a bad property investment. Consider the following warning signals that it’s time to move on to another property…

1. The numbers don’t make sense on paper
The bottom line is that you expect to make money from your investment in any property you buy. So if the seller won’t budge on a rather high price for a property after it’s been on the market without selling for quite some time—then that’s a sign to forget about this one and move on to a better investment.

2. Lack of hard facts
If the seller can’t provide you with statistics on rentals vs. vacancy rates, neighborhood allure, year to year profits, etc., it’s probably wise to guess that the success rate for rentals in the building is low. Never enter a deal blind—move on to the next profitable investment. Same goes if the numbers are all guesswork on part of the current owner. Tell them you want to see hard numbers or walk.

3. Location is in a bad neighborhood
The whole idea of buying property for investment is to buy in hot or an up and coming neighborhood. Don’t waste your time or money investing in a property located in a poor or declining area. Once the area is known as bad, unsafe, or slummy, it will take a long time to lose that stigma for potential tenants and you won’t be able to charge enough to make your money back.

4. Too much maintenance for the money
Sure, I’ve seen a lot of apartment buildings and houses that look like great investments online or on paper. But when I actually go see the site with my own eyes—it tells a slightly different story. A property in decline or one that has been neglected for far too long might cost more trouble than it’s worth if you expect to make a profit.

5. The property is a lemon
Bad neighborhood, too much to fix…whatever the reason…a property has been for sale for months and hasn’t sold might be too much trouble than it’s worth. It could be for a variety of reasons, but that tells me that the property is a lemon. Do your detective on properties that have been for sale for far too long to find out why exactly they went sour.

Comments

  1. An impressive share! I have just forwarded this onto a coworker who had been conducting a little homework on this. And he actually bought me dinner simply because I discovered it for him… lol. So allow me to reword this…. Thanks for the meal!! But yeah, thanx for spending the time to discuss this matter here on your site.

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