There is a lot to consider when deciding if a real estate property is right for you. Each investor is different, every property is different, and there are always rewards to consider when deciding to commit to a new real estate venture. Everyone has a different idea of what the perfect real estate property looks like, but there are a few items that every investor should keep an eye out for when analyzing a property. Here are four issues that should be deal breakers when it comes to investing in real estate:
Sometimes investment properties need a little work; it’s just part of the game. However, significant, costly repairs like leaky roofs or cracked foundations should be a no-go. The whole point of this investment is to get money out, not to shovel a whole lot in from the start. If you find a house that needs a lot of repairs, don’t do the repair yourself, just wholesale it.
Facts And Figures
Part of being a smart investor is trusting the facts and figures instead of going with your feelings. If a property isn’t producing the numbers you want, if it doesn’t generate positive cash flow, if it’s not going to bring in your desired rent you need, or the net operating income is below average, skip it. You have to make decisions based on the facts, not on how much you love the property. The numbers don’t lie.
If the investment property you’re interested in appears to have solid returns that seem consistent with the local market and the other investment properties you’ve worked with, you’re probably in the safe zone. If you see unrealistic numbers, you’re probably missing something. Remember, these are the 4 things you should care about:
- Down payment (if any)
- Repair costs
- Monthly cash flow
- Total potential profit
In your career as an investor, chances are you’ll stumble across a property that makes you say “what was the builder thinking?” If you think the layout or design of the property is questionable, chances are buyers will too. A room that can only be accessed from the backyard or a bathroom that exits into the garage is weird, and probably not something worth getting involved with. If you can take down a wall or add a door, it may be fixable. But if the overall floor plan is just awkward, it could be a deal breaker.
It’s no secret that real estate is about location, location, location. The property could check all of the boxes, but if it’s in a bad area, you’re not going to see a high ROI. The location of a property is one of the few things that cannot be fixed or changed. The crime rate, projected growth, and even school zones play a significant role in whether an area is desirable or not. Don’t be blinded by the perfect property and miss that it’s in a high traffic area, or right next to train tracks, or in a neighborhood known for high crime rates. There’s not enough “investing” you can do in a property to change the location. If the area is iffy, you’re better off finding a different property.
A major part of making smart investment decisions is balancing careful analysis and your gut instinct. It’s about trusting your instincts and knowing a deal breaker when you see one. Your goal as an investor is to weigh the pros and cons of a property and decide which issues are fixable and which are worth walking away from. Don’t ignore the deal breakers. Instead, walk away with confidence and wait for the property that checks all of the boxes.