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Real estate investing continues to be one of the most lucrative opportunities you can venture into— that is, if you know what to look for, as well as what to watch out for. Most investors would advise you to check factors that make rental real estate appealing, such as its features, proximity to amenities, and the rental demand in the general area. Rarely will you hear about what can drain your finances in the long run.
Key Highlights:
- Avoid poor quality flips. Some renovated properties may only look new on the surface. Check for signs of rushed work, mismatched fixtures, or missing permits to avoid costly repairs late.
- Watch out for high-maintenance exteriors. Elaborate landscaping or decorative water features may look appealing, but often come with steep upkeep costs. Opt for simple, low-maintenance designs that still boost curb appeal.
- Inspect electrical and plumbing systems. Outdated wiring and leaky pipes in older properties can lead to safety hazards and expensive fixes. Always review maintenance histories or hire an inspector before purchase.
- Review existing leases carefully. Buying a property with current tenants can be risky if they have unpaid rent or lease violations. Ensure you understand the existing agreements before taking over.
- Check for hidden water damage or mold. Cosmetic fixes can hide deeper issues like mold or leaks. Conduct thorough inspections, especially behind walls and vents, to avoid health risks and costly remediation.
Why This Is Important
The acquisition of a rental property starts with a lot of expenses, from paying the purchase price to conducting renovations. The last thing you need is additional costs that you might have to cover just to make the place operational and safe.
Many property owners have faced this mistake, wishing that they knew what to look for so that they could’ve saved on costs. This blog serves as a list of red flags to look for before investing in real estate, so you won’t have to face costs that are easily avoided.
Red Flags to Check
Poor Quality Flips
House flippers often buy outdated properties and renovate them to sell at a higher price. The problem is that some of them like to cut corners, meaning that they make superficial upgrades to make the real estate look desirable.
Under that fresh paint, you might find rushed work and subpar materials to save on construction costs. You will only notice them when you don’t look for signs of the issues that start to appear after you buy them.
A tip? Look for signs of rushed construction such as uneven floors, mismatched fixtures, or missing permits. You can even scrape off a bit of paint to see if they bothered to strip off the previous coat instead of just applying another one.
High Maintenance Exterior Features
Curb appeal matters in the rental market, since people would rather live in a place that looks good inside and out. However, some features may not be worth it if other options are low maintenance but would still provide the same “wow” effect to potential tenants.
Take water fountains, for example. They look appealing but often exceed a rental property’s maintenance budget. Some landscaping designs like shaped hedges or elaborate gardens may cost you more than you anticipate, especially if you hire landscaping services.
Look for properties with exterior features that are easy to handle, such as simple but vibrant gardens, porches, walkways, or even bird baths. Keep in mind that water features with complex mechanisms are hard to maintain and expensive to fix.
Outdated Electrical and Plumbing Systems
Older buildings may be cheaper in price, but you will spend a fortune modernizing the systems to avoid issues and conserve energy. Old wiring or leaky pipes are often problems that cause more issues, which can potentially be dangerous.
Badly maintained wiring can lead to electrical fires, and leaky pipes can lead to higher utility costs and water damage. What you think is an isolated problem can quickly turn into several expensive repairs.
To find out whether these issues are present, you can ask for the maintenance history of the real estate property, along with inspection reports. If you’re not satisfied, you can hire a professional inspector to check the integrity of all the systems.
Existing Leases with Problematic Tenants
If you purchase a rental property, there’s a significant possibility that you will inherit tenants as well. These are renters that you did not screen yourself, so you can never guarantee whether they will follow your lease rules or not.
Review their existing lease agreements and ask the previous property owner which tenants are problematic and what the issues are. The seller can either resolve the issues, such as unpaid rent or lease violation, or look for other properties that do not come with baggage.
Starting a rental business is already hard enough. Buying an occupied rental property doesn’t give you much room to breathe to set things in order, and you could fall behind before you even begin.
Hidden Water Damage and Mold
Just like it is with flipped properties, it’s easy to conceal visible issues with a fresh coat of paint. Water damage that can be seen on walls can be painted over, and the outer part of vents can be wiped clean to hide the signs of mold growth.
These will not just affect you but your future tenants as well. The rental property will soon deteriorate, and your tenants can suffer with health issues from mold. That’s why it’s always important to conduct a thorough inspection first.
Check suspicious areas where mold may be growing. Don't just look at the exterior or the surface. Remove vent covers, check behind furniture, or hire an inspector who knows where the problem areas are.
Real Estate Hidden Issues FAQs
What are the most common hidden issues in real estate properties?
- Ongoing maintenance, outdated systems, water damage, mold growth, poorly executed renovations, and cosmetic coverups are among the most common issues you need to watch out for before investing in a real estate property.
Why is it important to identify money pits before buying a rental property?
- Spotting potential financial drains early prevents you from investing in properties that look good upfront but cost far more in long-term maintenance or repairs.
What does “money pit” mean in real estate?
- A money pit is a property that requires ongoing, expensive repairs or maintenance that drain your finances over time, making it difficult to earn a profit from your investment.
Can a flipped property still be a good investment?
- Yes, if it’s done with quality materials and proper permits. Always verify renovation records and hire an inspector before closing the deal.
Should investors avoid older properties altogether?
- Not necessarily. Older homes can still be great investments if they’ve been properly maintained and updated with modern systems.
What Comes Next
After you’ve successfully identified potential money pits and made a good investment for a rental property, the real work begins. You will now have to handle the day-to-day operations that keep a rental business running, and if you have multiple tenants, it might not be as easy as you anticipate.
Fortunately for many investors, especially first-time rental property buyers, there are professional services available that can help you ease into your role. ES Property Management can help you handle your landlord duties without being overwhelmed.
Our property management services are both comprehensive and efficient, making sure that your rental business starts off great and continues to do so.
You don’t have to handle all of it alone. Contact us today, and learn more about our services.
