A Rental Property’s Problematic Past
What are the warning signs you need to be wary of when looking at a property?
Not every property is perfect, and there are many red flags to be aware of when you are looking to purchase or rent a property. Here are five things to be mindful of when looking for a property:
Changes in Ownership
Frequent changes in ownership is typically not a good sign, and it would be wise to discover why the property is changing hands as often as it is. There may be something that is preventing the property from being a viable option for a rental property, such as a devolving neighborhood or nuisances of neighbors. It is possible that the previous owners just wanted to cash out and give up being rental investors. Whatever the case may be, find out for yourself why the property is getting new owners prior to purchase to be sure you’re not in for something that could be detrimental to your business.
Sudden Price Drops
It is typical to see the price of houses rise and fall as the year progresses. However, seeing significant price drops as high as $30,000 can be a huge red flag. Did something suddenly go wrong with the property itself to make the price take a large hit? Was there a recent death on the property? Is the current owner eager to get out for some reason? Find out what you can about the large price drop to learn if it is a property to avoid.
Structural, Environmental, or Zoning Issues
When evaluating a home, try to find out if it has any structural issues, nearby environmental hazards, or issues with zoning.
Structural problems in a home are a costly correction that could force you to pay a pretty penny. Hire a structural engineer and conduct a pre move-in inspection to determine if the property could have any structural problems.
The problem could also be in an area with nearby environmental hazards. If the property is in a mudslide zone, a wildfire area, or on an earthquake fault line, it not only makes it less desirable but potentially unsafe for future tenants. Sellers are typically required by law to disclose any of this information prior to sale, but it would still be a good idea to check any official maps or outright ask the seller prior to finalizing the sale.
Purchasing a property with zoning issues may also prove to be problematic. Fixing a zoning issue on a property will not only be expensive, but can require a lengthy legal process as well. You will end up paying an attorney to try and fix the issue, and even then it is still possible that it will not work in your favor. As with other issues, do your due diligence and try to do any research and ask all of the questions that you can regarding the zoning of the property.
Criminal History
Some properties unfortunately have a dark past. Whether it was the scene of a crime or once contained a meth lab, finding out the property has featured criminal activity in the past is never good. If it was the site of a meth lab or previous crime, it can be costly to try and rectify this, something that many small time or beginner real estate investors may not be able to accomplish. A lot of good digging online can help you determine the history of the house. The DEA offers a National Clandestine Laboratory Register that lists the locations of previous meth labs, and it is available free to the public. You can also look up previous owners, renters, or simply ask the neighbors to gain some more information.
Bad Neighborhood
There will be times where you will find a great house in a not-so-great neighborhood. It is important to evaluate the surrounding area, including neighboring properties, any nearby amenities, and how it is being maintained, as it will all affect the potential to get tenants and can negatively affect its resale value. Additionally, it is valuable to assess the neighborhood’s school districts as well as its crime rates to determine whether or not the property has a high value. While your property may stand out, location is one of the aspects that matters most in real estate as it is one of the few things that cannot be changed or affected by you.
Final Thoughts
Being cautious can be a good thing when evaluating potential property investments. There are many things to consider with a property, and you need to make your investment worthwhile. While it may seem daunting, just be sure to cover all of your bases and find a property in good condition with a nice location that doesn’t have a haunting history.
