You’re eager to buy your first investment property, and after finding a property in your budget, you’re ready to make the leap. But before you do, it’s important to make sure you’re not inadvertently buying into a money pit. While fixer-uppers make great investment properties, some problems simply aren’t worth taking on.
3 Rental Property Deal-Breakers
When it comes to investment properties, dealing with these problems isn’t worth the money.
1. A bad location
There’s no fixing a bad location. While a rental property in an up-and-coming neighborhood could be a smart investment, homes in high-crime neighborhoods or areas with poor schools tend to come with higher maintenance costs and less reliable rents. Rural homes pose a challenge too due to low incomes, lack of rental demand, and stagnant home prices. As a result, these homes are unlikely to generate the return you need to be profitable.
2. Widespread water damage
Musty odors, stained walls, bubbling paint — these may not seem like major issues at first glance, but these problems are just the tip of the iceberg when it comes to water damage. Behind the walls, there could be widespread mold issues, deteriorating structural elements, and plumbing in need of major repair. None of these problems are cheap or easy to fix, so you’re better off walking away.
3. Sellers who refuse an inspection
As-is sales are common for investment properties, but if a seller won’t let you inspect the property, it’s a major red flag. It’s never wise to enter a deal blind, especially if you’re a first-time investor using financing to buy a rental property.
3 Repairs That May Be Worth Making
These repairs can be costly, but they can also be worthwhile. Here’s what to know if you encounter an investment property with these issues.
1. HVAC issues
It’s wise to take a close look at the HVAC system when assessing an investment property, but what do you do when the inspection comes back with extensive HVAC issues? Before you scrap the deal, assess the size of the air conditioning unit and whether the home needs ductwork installation or repair. Most AC installations are relatively affordable at an average cost of $5,598, but factors like expensive units or ductwork repairs can drive costs well over $10,000.
2. Foundation problems
When it comes to primary residences, most buyers are warned to walk away if they notice signs of foundation problems. However, foundation issues aren’t necessarily a deal breaker for investment properties. They simply call for due diligence. Hire a structural engineer to assess the extent of foundation problems, then account for the cost of repairs in your offer.
3. Big lots
Oversized lots are usually a no-go for real estate investors, who want to minimize the time and money spent on yard maintenance. But there’s one big exception to this rule: If zoning allows for subdividing the land or constructing an accessory dwelling unit, a large lot is a huge asset. Before buying a property with the intent of building additional units, find out what’s required to legally subdivide the land. While a simple subdivision can cost as little as $2,000, you’ll pay a lot more if you need to install utilities or roads.
Buying fixer-uppers at bargain prices helps investors maximize their real estate returns, but not every fixer-upper is a good investment. Before sinking your hard-earned cash into a fixer-upper property, perform a thorough inspection and make sure the after-repair value pencils out. When you do your due diligence, you ensure that your first real estate investment is a wise one. Image via Unsplash