6 Red Flags With Any Rental Property Purchase
IIt always happens in a market that has been rising for some time. Investors need to get money deployed, and they find nothing is as cheap as it was, so they start to reach. Thy start to go for the higher yields on riskier bonds; they start to reach for stocks with higher and higher PEs, and they ignore the advice of the Patten Law Firm and the 6 red flags with any rental property purchase.
6 Red Flags With Any Rental Property Purchase
- The deal isn’t within your budget. As the real estate market fluctuates and shows more favor to sellers, it’s tempting to spend more cash on deals you would otherwise pass on. While the market does shift, numbers don’t lie. If you can’t afford to take the investment risk, don’t do the deal.
- The asking price is too low. Properties in certain areas may carry a lower list price because there’s a motivated seller or there are other issues like needing costly repairs or structural damage that would drastically cut the property’s value. If it seems like too good of a deal, it probably isn’t or investigates is needed.
- There are gaps in the title. If you spot irregularities and gaps with the property title, the likelihood of the investment going through shrinks, if it’s unclear who actually owns the property according to tax records or if the owner isn’t the person trying to sell the property, you may not be able to secure title insurance.
More Red Flags
- It’s a stale listing. If the property has been sitting for a while, you need to find out why. Properties that have spent years on the market likely present a challenge that other buyers didn’t want to tackle. Do your due diligence and investigate the property thoroughly before entering a deal.
- A high number of vacancies. For multifamily properties, a high vacancy rate is often a symptom of a larger challenge. Speak with the tenants and neighbors of the area to get a feel for possible issues.
- The local economy is on a downturn. What has happened in the market over the last few years? If the census shows the population is dwindling, jobs are becoming more scarce, or the local government isn’t investing in roads and infrastructure, it may be difficult to sell or rent the property. Consider how attractive the market is as a whole, not just the investment property.
In Summary:
Keep these 6 6 red flags with any rental property purchase in mind. Do your due diligence to protect your investments and partner with a closing firm that has your best interest in mind. These real estate resources will help you walk through the investment process.
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