Real estate investing comes with plenty of pros and cons to consider. It’s especially important to evaluate the situation and the property that you are attempting to put an offer on and eventually buy. How do you identify if there are any signs that you might be jumping into a bad investment?
It’s important to know that when a realtor shows excitement in selling you a property, it is literally their job to do so. However, if they seem overly avid or even pushy, there might be some details about the property that could make it hard to sell which is making the realtor a bit extra aggressive to sell it. Listen to your instincts and, if necessary, investigate as much as you need to ensure you are making a good investment. Have the property fully inspected before agreeing to sign anything. Realtors should be truthful and upfront, offering their professional guidance on the best course of action, even if it’s not what you were expecting or hoping to hear.
One of the most important factors that determine if a property is worth investing in is the location. Even if the property is in a perfect state, if it’s poorly located, chances are you will be losing money. Some of the factors that determine a location are the local economic health, the levels of vandalism and crime, the school district, etc. Before coming to a final decision, make sure you do a thorough investigation of the location. Choose areas, for instance, that have great schools, fun attractions, quality transportation options, high walkability, and great retail spots. Proceed with caution—no matter how the numbers look on paper.
If a property has been on the market for six months or longer, other investors have probably checked it out. There’s a reason it’s not selling. It could be a bad neighborhood, or too many issues to fix, whatever the reason…a property that has been for sale for months and hasn’t sold might be too much trouble than it’s worth. Dig deep into why it has been for sale for far too long to find out why exactly. While it’s possible for a property to simply evade the attention of other prospective buyers and investors, this isn’t the most likely explanation for a listing that’s been up for a long time. If it seems like there’s no interest in a given property, it’s a red flag that there isn’t sufficient market demand for that type of investment.
A property can look good on paper and still be a bad investment. If a house has structural damage, foundation issues, or other problems that will require a long inventory cycle or cost so much that it will eat into your profits, then your best bet is to walk away. Considering renting out the home? If the plumbing, electricity, and other infrastructure will need constant and frequent repairs, it could be a bigger headache than it’s worth.
Thinking to the future not only on the property you are interested in but to its surroundings as well. Learning of the current and potential growth in an area can greatly benefit any investor. Visiting the municipal planning department can yield information on developments and project plans that have already been zoned into the area.
One important consideration is the amount of new construction in the area. Lots of new planned projects and those still in development typically represent an area of substantial growth. If you will be renting out the property that would mean new tenants with the growth of the area.
The Bottom Line: These are just a few signs on how to spot a bad investment. Nobody wants to deal with the fallout after a bad real estate investment, so you must do everything you can to minimize your risk and do a lot of investigating on each property. Arm yourself with a good realtor, access to information, and patience.