Guide to the Red Flags of Property Investment
This post was written by our partners at Mashvisor, whom are making it easier for investors to find and analyze new real estate investments.
Buying an investment property is an exciting venture, and has the potential to be a successful business venture – but there is also the possibility of investing in a terrible area, wasting money on an awful agent, and not being able to find tenants. Use our experience and step-by-step guide so you can avoid the red flags and help ensure your investment property gives you the returns you’re expecting!
Step 1: Find A Real Estate Agent
When looking for an agent you want someone who is experienced, reliable and communicates often. Here are the following signs to look out for:
Part-time agent – There are many skilled part-time real estate agents in the market but this does not mean they are for you. They are definitely not for you. You want someone who knows the market back to front, the ins and outs so to speak, someone with a lot of experience, and someone who is spending, as much time as possible finding you the property you want. These are things that are not easily obtained and part-time realtors normally can’t offer them.
Unspecialized agent– When ‘interviewing’ potential realtors, ask them about how many investment properties they have sold and where. You want to be sure that the agent you’re working with has a specialization in the neighborhood your looking in as well as in the type of property. If you are looking to buy a condo, be sure to ask if your agent has worked with that type of property before. This is especially important when you’re looking to buy an investment property, as finding an agent who has a specialization in investment property is invaluable.
A similar price range – Although this might often be an overlooked detail, you will have much better success with an agent who has experience with the price range you are looking in. Many agents will try to cover the full market, but with a little extra research you will find someone that specializes in what you want.
If you feel confident, or want total control of your property search, use resources such as Mashvisor might be the best option for you. Mashvisor can help you find the best neighborhoods to invest, giving you an accurate idea of the most profitable properties and offer a data analysis of the property potential. Using real estate data compiled from hundreds of cities, Mashvisor can let you know what returns you can expect to get when renting out the property, helping you make an informed decision before you commit to buying.
Step 2: Finding an Investment Property
If you decide not to use an agent, you will still be able to get great returns as long as you avoid some big mistakes. Here are our tips on what to look out for:
A ‘terrible’ location –no matter how “up and coming” someone might tell you a neighborhood is, if the location is in a neighborhood that is dangerous, or dirty, or is in the middle of nowhere, it’s going to be hard to find renters right now, and you may not want to wait around for the location to gain popularity. If it’s not popular right now, might not be the best idea for you to wait around for it to be a hot spot one day.
You’re unsure about whether you’ll be making any returns– if after your calculations you can’t see a viable way to make any money, or your expenses will be more than what you’ll make, this property isn’t for you.
You aren’t getting all the answers– when buying property, but especially when buying an investment property, you need to know everything you can about the place. If the property was rented out before, you’ll want to ask about vacancy rates, and nightly rates. If the property hasn’t been rented out previously, these facts are more difficult to come by, and the absence of them isn’t necessarily a red flag.
Step 3: Find a Tenant
This is arguably the most enjoyable part of the process; once the house is yours and all the necessary work has been done, you need to find someone to occupy it! Working out whether you want short or long term tenants can be difficult.
These are the following things to consider:
Do they have references – if they can’t provide any references this is something to be looked into. They should have references and if they don’t, this needs to be addressed and should not be ignored. If they are moving out of their childhood home, or separating from a partner, this may be something that can be explained away – otherwise consider it a red flag.
Deposit – Don’t forget the deposit (ranging from anywhere between 1 –3 months rent) and will vary hugely depending on the type of guests. Even for short-term guests a deposit is still a smart idea. For long-term guests, a deposit ensures that if anything gets broken, it can get fixed. More importantly, it also demonstrates that the future tenants have the ability to pay the rent.
Are they asking lots of questions about the neighbors, noise levels and where you live?– Okay, they may just want to get as much information on the property as possible, but if they are asking specific questions about things like noise complaints, and how often you’ll be coming round the house, how often the neighbors are home, you may want to reconsider. Also make your rules clear, if you don’t want smokers, let your renters know before they move in, same goes with having pets. Set down the rules from the get-go, so you don’t get surprises later on.
Buying an investment property is an exciting process and this step-by-step guide of what to look out for and being able to easily spot out the red flags will make you feel more comfortable about going through the movements, whether you decide to use an agent, or go at it alone.
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