This amounts to lost opportunity because if you had purchased RE, at the closing it can start producing return. 5) ADUs detract from the existing structure whether this is privacy, a garage, or just yard space. 6) this is related to number 1, but there are many more buyers looking to purchase homes for their family than there are RE investors looking to purchase small unit count properties.

Purchase price: $2,800,000 Cash invested: $560,000 The property is a three-story multi-family residential building with six independent units, initially facing significant challenges due to poor conditions.Renovation Investment Summary:- **Structural Repairs:** $250,000- **Kitchen Modernization:** $100,000- **Bathroom Updates:** $50,000- **Exterior Improvements:** $100,000- **Holding Costs:** $50,000- **Property Taxes:** $30,000- **Insurance Costs:** $10,000- **Management Services:** $10,000

The exterior got a fresh coat of paint, and I added modern fixtures inside to attract buyers.

If those are relatively modern you have very little to worry about.

The ideal property would meet the above criteria, AND would have a large yard, or ideally, a detached garage that was a suitable candidate for an ADU construction project (CO now allows ADU construction on most properties), and/or a primary structure that had lots of value-add potential. 

And the passive loss rules may prevent you from getting a tax benefit if your rental deductions are more than your rental income for all of these options.David OrrTax Modern

I removed the chimney entirely and installed a full HVAC system, making it the only house on the block with modern heating and cooling.

One of my lots had only a garage on it, which the city wouldn't allow, needed to have an inhabitable structure in addition to it. 

They have to meet modern codes and SEQUA requirements.. this is what stops building on lots that would not be buildable with modern subdivisions map act standards or modern zoning. in the hilly areas road widths and slopes will not meet Sequa so they stop building on those lots there are thousands of the lots scattered around LA county and these are the lots you see going to tax sale all the time.

Compliance items such as adding smoke detectors, hand rails, fire resistant garage entry-door and new stairs outside.