Many new investors get caught up in the excitement of buying investment property.
They focus on all the money they’re going to make from flipping a property or buying a rental.
They get emotionally attached to the deal, and in some cases, even get caught up in bidding wars.
Even if they manage to find a property at a great price, what they don’t understand is that cheap does not necessarily mean value. In other words, it could be cheap for a very important reason.
All of these scenarios often result in investors looking past some critical flaws in the property.
These flaws can cause major problems later on, either when they try to sell the building, or even when they try to find tenants to rent it.
Here are 4 big ones to avoid…
1) High condo fees
Condos are a favourite investment for many investors. The monthly condo fees take care of all exterior maintenance, leaving only minor interior maintenance to deal with.
The problem is that many investors don’t realize they usually have little to no control over condo fee increases that are set by the condo board.
In addition, they often overlook the fact that higher than usual condo fees can be a big problem when trying to sell the property down the road.
A family friend is in this exact situation… they bought a condo years ago as an investment, and the condos fees are VERY high.
So high in fact, that they’ve had their unit listed for sale for over 1 year, and it’s still not selling, despite the fact that the area is very trendy, with many high income buyers.
2) No parking / Bad parking
Lack of parking or bad parking can be a somewhat subtle problem that many people overlook, especially if everything else about the property is good.
Properties without good parking cater to a very particular type of buyer – those who don’t have or want a car.
The market for this type of buyer is MUCH smaller than for regular home buyers (or even renters).
I’ve experienced this problem myself and it was a hard lesson to learn. I was selling a townhome that was fully renovated and it looked great.
I had no problem attracting interested buyers, but as soon as they discovered there was no parking (or city permitted street parking in this case), I lost 90% of my prospects.
Many of them had families, and they didn’t want to deal with having to load/unload groceries and children by parking down the street.
3) Not enough bedrooms
This is usually an obvious problem for investors… IF they understand their target buyer or renter. If they don’t, then they probably won’t notice until it’s too late.
That’s why it’s so important to find out exactly what it is your target buyer or renter before you buy. Then you can focus on the types of properties that match those criteria.
For example, if an investor is buying in an area that typically caters to young two-parent families with 1-2 children, then they should be focusing on 3 bedroom homes.
That provides one bedroom for the parents, and one for each child. Any less than three, and it’s going to be a problem selling or renting the property.
4) Bad neighbourhood
This flaw is easy to spot in some areas, not so easy in others (unless you have a trained eye).
Look for pride of ownership with the homeowners and renters – well kept lawns, nice landscaping, etc. Talk to the neighbours and see what kind of ‘vibe’ you get from them.
Keep away from areas with garbage strewn everywhere, cars on concrete blocks, and many people home during the day (unless they are retirees who don’t work).
Also check out the neighbourhood both during the day and at night-time – often times the problem areas will start showing themselves after dark.
All of these critical flaws will drastically hinder your efforts to either sell your property or rent it out.
If you’re selling, you’ll probably have to take a lower price to find a buyer. If you’re renting, you’ll have to reduce your rent, and you may have a hard time finding quality tenants.
Taking the time to thoroughly check for these flaws before purchasing will save a lot of time, money and headaches during the life of the investment. Trust me on this one.