Don't Buy This Property!!!

It might seem counter-intuitive for me to suggest to not buy a property. But believe me, I've talked people out of doing just that here in Pittsburgh, PA. Reasons for not buying a property may range from physical condition, neighborhood concerns, no cash flow or return on investment opportunity, overpriced, or other financial issues. I'm going to share some personal examples of how I've talked people out of buying properties.

First off, let's talk condition of the property. Recently I took friend to see a property where the black mold was so bad in the basement, the cost of remediation would have been sky high. Then there was the property where the addition was built on the ground, not on a foundation. Bad build...not to mention rot was already occurring. I looked at a multi-unit that was beautiful, but when I went to the basement, the foundation was bowing dramatically inward. Those are just some examples of what I've seen. You might find other reasons, such as deteriorating roof, water issues, cost of re-wiring or re-plumbing or structural/foundation problems and so much more. So you need to factor in repair costs and/or bringing the building it up to being barely livable and what your AVR (After Repair Value) will be.

Ok, this might be an extreme picture example, but there are indeed properties out there that don't cut the mustard. I mean, you've got to be budget conscious. Ideally you want to find a property that can positively cash flow and/or you can fix up and make a profit on. This takes thorough research and intense calculations. Your comparables will help to determine if the list/ask price is fair. Many use rentometer.com to help them check rents in a particular market. Or if you're working with or plan to work with a property manager, they're well equipped to help you analyze a property. In turn, this should help you decide if a property can have good cash coming in compared to your monthly expenditures. Create a spreadsheet with everything that your spending money on such as mortgage, taxes, insurance utilities for common areas, maintenance, property management, vacancy rate etc. Then what your tenants will be paying to in rent, pet fees, other fees, coin-operated laundry facilities or other amenities purchasable. This should be a fairly comprehensive and all encompassing spreadsheet. You can find many templates online and one must be completed for every single property. Can you make money on your impending purchase? If so, great. If not, well you have your answer. But maybe it's just that the property is overpriced.

Price to purchase too high? Well this one is hit or miss. Meaning that sometimes sellers will stand firm. And other times, they may be open to negotiation. Best to be armed with knowledge. If you're really interested in the property, but find it overpriced, back up your claims with proof. Comparables, local market conditions, condition of the property, time of year and tread lightly on this one....overzealous seller. Investment properties are sometimes more difficult to obtain comparables, but it's still doable. When in doubt, consider an appraisal and if need be use the appraisal contingency option in your purchase agreement. It's all about the calculations and the cash flow, right!

Financial issues are the biggest reasons for buying or not buying a property. Sometimes the taxes are out of line, budget restraints don't favor it being a good investment, neighborhood doesn't support list price, potential repairs are exorbitant or cash flow doesn't support the purchase. Some of these can be negotiable, but most are not. So do your research, feel free to enlist real estate experts for advice and by all means don't feel bad for not buying it! There are others...