Investing in real estate is no small matter. Ignoring certain red flags can result in significant losses and may turn your property into a money pit. By recognizing which red flags to watch for during your house hunt, you can focus on securing a strong investment instead of wasting time and money on a property that doesn’t meet your goals.
Foundation Problems
Foundation issues can be some of the most expensive repairs in real estate properties, and poor structural integrity can put you and other residents at risk if not addressed promptly. Look for cracks in the walls, ceilings, and floors, or think about hiring a professional if you overlook any structural weaknesses.
Water Damage
Stains and warped walls and ceilings aren't the only things you have to worry about with water damage. Due to the dampness caused by the issue, you might also encounter mold problems, which serve as a health hazard. Don't limit yourself to looking for damage that has already been caused. Check the pipes, windows, and roof to identify potential issues that can turn into big problems.
Flood Zone
Determine whether the property is in a high-risk location for flooding. Do your due diligence and research the flood history and other natural disasters. If the risk score is higher than the average number, it might already be a bad deal. Fortunately, Austin, Texas, has a relatively lower natural disaster risk score of 26%, although it is still prone to flooding.
Neighborhood Decline
While a decline in the local population can mean many things, analyzing the data may present an unfavorable impression of long-term property values. Investigate other elements, such as the quality of schools in the neighborhood and the local economy. If you're uncertain how to proceed, you can always hire real estate professionals to conduct the research for you.
Short Sales
Be cautious about shady real estate transactions, such as short sales or distressed properties. These can involve the property owner setting an asking price lower than their current mortgage. They can also be scams, or the seller might be omitting outstanding balances. It's better to consult a real estate agent or hire a professional to appraise the property.
Unrealistic Asking Price
Research the property's market value to compare the seller's asking price. If it seems unrealistic, it can be a major red flag. Underpriced properties may come with hidden costs, and if it has a higher-than-average number, you’ll be at a loss. Find a property that is actually worth the investment for better potential returns.
New Houses with No Issues
Buying a new home can be a good deal because it's likely that you won't face any issues, but don't immediately assume that as a guarantee. New houses can have problems too, and investors tend to overlook red flags. Check the workmanship, the materials used to build the house, and why it was placed on the market.
Unclear Property Title
Research the property's title and ownership history to cover your bases. Just because everything is in good working order and appears to be a dream home doesn't mean something might be wrong with the documents. Consult a title company to review the deal before you sign the dotted line to avoid issues like real estate fraud. One house sale can easily cause many problems if the paperwork is not sorted out before the purchase.
How Researching Beforehand Benefits You
Avoid Financial Losses
Spotting red flags before closing a real estate deal can prevent unexpected maintenance costs and declining property value. Researching can also help you see past a fresh coat of paint and seemingly spotless properties.
Minimize Legal Problems
Losing money from a bad investment is already bad enough. Still, you might also face legal issues concerning zoning violations, title issues, real estate fraud, and other legal red flags that you might've overlooked or the homeowner failed to disclose.
Maximize Return on Investment
Investing in real estate is all the rage now as it can be very lucrative, and some sellers are taking advantage of this. If your main objective is to profit from the purchase, always weigh the costs and the potential returns before taking the property off the market.
Ensure Long-Term Property Value
Inspecting and addressing potential issues early can help you maintain or increase the value of your real estate investment over time. As an exit strategy, you can hold the property and sell it at a higher price, which is a common practice among real estate investors.
Gain Leverage for Negotiation
Staying aware of potential issues can give you leverage to ask the seller to lower the asking price. This is a fair exchange, especially if you’ll be shouldering other expenses after acquiring the property.
Save Time
Many investors cannot afford to waste time on deals that will only fall through. Finding red flags early on allows you to back out of the deal and find better investment options. There are plenty of other real estate properties that can be more profitable and will cause fewer problems that don’t waste your time.
Hiring a Property Manager for the Next Step
Purchasing a property is just the first step. If you intend to turn it into a rental business, you must anticipate the amount of work you must put into it to make it successful. Even for experienced landlords, managing a rental property can be overwhelming.
Hiring a professional like us at Austin Property Management can help you reach your rental business goals. With our expertise and resources, we can maximize the value of your property and quickly get returns on your investment.
Learn more about our services and how they can help you run your rental property. Schedule a free consultation to discover whether we are the right fit for your investment journey!
More Resources:
What's Next After Buying Your First Rental Property in Austin, TX?
