You work hard for your money, and therefore expect it to return the favor when it comes to how you invest it. But that isn’t always the case, especially if you don’t do your due diligence before investing in any asset class. This holds especially true for real estate investing. Even if the numbers show you positive returns, there are additional ways you should vet your investment property before you buy it. Our experienced Asset Selection team has compiled a list of hidden signs for you to watch out before you decide on buying an investment property.
We always recommend performing an inspection and appraisal before purchasing a property, but these are signals you can distinguish right away by looking at the photos and descriptions available online.
When drywall is removed two feet off the ground on your potential investment purchase, the investment property has most likely gone through a mold remediation. Now, while fix and flippers might revel in this discovery, buy-and-hold investors will not. This signals a more extensive, initial renovation that will most likely eat into your returns.
Here’s an example of a property with a high yield (11.44%) in Columbia, SC, that shows drywall removal in the photos to give you a better idea of what we mean. We avoid these large-scale rehab projects for our investors and their income properties to ensure they can maximize their returns as much as possible.
Poor Condition of Roof
Another tip is to take into account the age of the building and the type of roofing material to figure out when you will need to replace the roof. For instance, a twenty-year old shingled roof lasts for roughly fifteen to twenty-five years, depending on the local climate. Therefore, a house built in 1980 is most likely ready for another roof in the near future. To make sure you aren’t caught off guard with this hefty expense, be sure and add this costly maintenance repair into your calculations and budget to give yourself a more accurate picture of your returns now and in the future.
Some other signs to look for in the roof that might signal an earlier roof replacement are fading, dry rot on the fascia, or moss on the shingles. And to be more certain, check for staining on the ceiling from inside the home; this potentially indicates a breach in the roof.
Peek through the Windows
An investment’s windows are great indicators of the overall condition. Neglected properties that tend to have higher renovation costs can be indicated by foggy (moisture-breeched) or old single pane windows that need replacement. Upgrading windows can be an expensive repair for the income-property owners therefore it’s important to either budget this cost into your expenses from the start or stay clear of these properties to ensure better returns.
Fixing the foundation of a home comes with a hefty price tag and therefore must be avoided at all costs for the buy-and-hold investor. To best make sure your foundation is solid, look for these signs of trouble:
- Cracks in the flooring of the home
- Large drops or cracks in driveway, especially in Texas and Florida
- Separation of molding and where the walls come together (they should be flushed and true at all times)
Between the Lines
Instead of just focusing on the home photos, it’s also a good idea to pay attention to the description of the home. Key terms like “TLC”, “handyman special”, and “calling all investors” are red flags for the buy and hold investor as they express a much larger renovation project and are trying to attract fix and flippers.
When you’re deciding to move forward with purchasing an income property, keep these five important signs in your back pocket. And if you’re looking at income properties on HomeUnion, you can rest assured – HomeUnion’s Product Specialist team has a thorough process in place to verify solid investments for our investors, like you. We also conduct local inspections and appraisals on your behalf. And if a property does not meet our standards, we will help you find another as your returns are our highest priority. Call 888-276-0232 to learn more.