Disaster Rental Property: 8 Red Flags When Real Estate Investing
We have all had that moment when shopping when we just want to buy it because it’s on sale. Haven’t you? We just can’t live without it. It’s just too good to pass up...you’d be crazy to miss out on this!
Sometimes, real estate uses the same mind games on investors. You find a property. It seems like a steal. But you have to stop and ask yourself: is the price blinding me to the property’s problem areas? Am I too charmed by the deal and the idea of owning the property to really look at this objectively?
When you’re shopping around for a new rental property, there are some red flag you absolutely can’t miss if you don’t want to end up with a dud. Ignoring some of these warning signs may not result in immediate issues, but you might end up in trouble down the line if you don’t pay attention before you buy!
8 Rental Property Red Flags: STOP Before You Buy1) Limited Renovation Potential
If you ever needed to knock out a wall, make some more room, change a kitchen layout, or add on an extension, could you do it? Some homes have strange layouts, small rooms, or things that just aren’t easy to reconfigure. If you’re trying to plan ahead for the future, you don’t want a property that’s going to be inflexible for your future.
2) Too Small
What is “too small”? Think one or two bedrooms—and if the rooms themselves, particularly the kitchen and bedrooms, are too small. These homes not only feel cramped, but a small number of bedrooms doesn’t attract long-term tenants. It attracts transient people, and that, in turn, increases your turnover rate and your costs in the long run.
3) Too Large
Homes that are too large (typically over 1,500 square feet) don’t do as well as rentals. It’s too much house for your average renter to handle, and your cost of upkeep goes up between tenants. This also includes the size of the lot. You don’t want to buy a home with a ton of acreage to maintain! Keep it modest and manageable.
4) Low Value or High Crime Neighborhoods
Crime and bottom-of-the-barrel prices can kill your investments. Not only do you risk the safety of your tenants and the condition of your property, but your rental income will suffer. You just can’t charge as much in that kind of neighborhood! Remember, just because the home was cheap doesn’t mean the cost of maintaining it will be cheap. Ultimately, what you make on a low value home isn’t going to be worth what it takes to maintain it.
5) Bad Schools
Your sweet spot for long-term renters are usually young families or young couples thinking about starting families. Those people don’t want to stay where the schools are undesirable. Think about neighborhoods and homes that are in quality school districts before you buy, and steer clear of the ones that have a bad reputation. Good schools is always a good draw.
6) Lack of Storage Solutions
Every home needs good storage. Whether it’s ample closet space, a nice attic, or extra room in the garage, we all need space for our stuff. A lack of that space is a big drawback for renters. A lot of older homes tend to have smaller closets, so think about what kind of storage solutions you may have to add to a rental property. A lack of storage isn’t a deal breaker, but it is something to address.
7) Wonky Layouts
Some properties have very, very strange layouts. These might work out, but nonsensical layouts aren’t generally good for rental properties. They can make renovations difficult (see number one) and they can be frustrating for tenants. For rental properties, it’s best to stick with traditional, normal layouts.
8) The Numbers Don’t Make Sense!
Perhaps the most important thing to look for: do your numbers make sense? When searching for the perfect property, you should always run the numbers. If they aren’t working for the property, it’s probably the wrong property for you. Move on and look for something better: we guarantee there’s more out there.
A savvy real estate investor can make rental properties work for them regardless of red flags, but by and large, you’ll want to err on the side of caution. Evaluate what sort of risks you’re willing to take!
Finding suitable properties in the right neighborhoods, at the right price point, in the right market—it’s all a challenge. Not to mention the whole process of acquiring the properties can be long and frustrating.
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