Real estate investment is one of the greatest investment all investors should consider. However, all investment properties are not worthy your money. There are properties that will never make you money no mater how hard you try.
Because of this reason, you should always approach property investment with caution. Doing your homework and knowing what properties to buy or avoid will shape your success in real estate.
In this article we will show you the kind of properties you should avoid.
Table of Contents
- Never buy a house located in flood, earthquake and other natural disaster zones
- Never buy a property with major structural issues
- Never buy a property renovated without a permit
- Never buy a house in location D
- Never buy a house with a shared driveway
- Never buy a property with an insurance title or with a lien on it
- Never buy a house without a defined master bedroom
- Never buy a property with just 1 bathroom
- Never buy a D property if you are not ready for renovations
- Never buy a house that is not inspected
- Never buy a house that is being shorted
1. Never buy a house located in flood, earthquake and other natural disaster zones
Natural disasters have become the greatest man kind enemy in some areas. They leave nothing behind in areas they affect every year. These disasters include but not limited to fire, earthquake, hurricane, floods, etc.
As an investor, you should avoid investing in properties and businesses located in these red zones. Doing so, you are subjecting yourself to these dangers and you know results will be catastrophic once they happen. You can lose all your investment capital due to these disasters.
Having an insurance that covers your business can help in some cases. However, if your properties are fully destroyed; it means that you will have to start from zero and it will take a while for you to get back on your feet.
You can use your county footprint maps and FEMA to check if the property you are interested in is in natural disaster zones.
2. Never buy a property with major structural issues
If you renovated a house with structural problems, you know it is not an easy task. It takes a long time and a lot of money to renovate a house with structural problems. When you are hunting for a house or a property in general, stay away from properties with cracked walls, sank foundations, etc.
These issues can also get overwhelming to inexperienced investors. Without the knowledge of properties investment and renovations you could lose all your money on just one property. If you are flipping houses and are not experienced, start with properties with minor rehab.
Minor rehabs projects include some of the following: painting, kitchen remodel, bathroom upgrades, etc.
3. Never buy a property renovated without a permit
When you are doing renovations of a property you bought, you might run into problems of renovations done before without approval. This is the reason why you need your property inspected before buying it.
If the renovations done before were not approved, the insurance might not cover your property. Let’s say that there is a fire in your house and the cause of fire was an improper wiring done by unauthorized renovations. In this case, your insurance might not cover your loss.
In addition, you could be required to redo the work done in the past. This could add more cost to your budget to a level where it is no longer profitable.
For your own protection, request all renovation documentations of work done on the property to make sure they meet the city and state renovation standards. Without these permits, you could be heading into endless repairs that will cost you a ton of money. More importantly, your insurance might not cover you until everything is property redone.
4. Never buy a house in location D
In this article, we discussed property locations. We found that location D is a location where houses are real old, the neighborhoods are bad with no adequate security, no good infrastructure, or education systems, etc. Location D is considered as a place where you would never want your family to live. In other words, location D is like a war zone.
So, if you are investing or buying a house for yourself, you need to stay away from these locations. Not only that you are bound to losing a lot of money on the property; you are also getting in areas that are unsafe. A location where none will want to buy your house when you decide to sell it.
This might sound like a simple problem, but it is not. If you have a shared driveway; you have responsibility to share cost of repairs and respect your neighbors. These shared responsibilities go well only if owners of the driveway are good and responsible toward a shared cause.
What if you have bad neighbors? They will park all their cars in the driveway and you will always be knocking on their doors asking them to move some of their cars so that you can park yours.
Photo Credit by Dexteroni Elder
In addition, you will have trouble making them to understand that the driveway needs to be repaired. In many cases they will refuse to spend a penny on such projects.
To protect yourself. you must consider whether this is a path you want to undertake. The decision you make can save you a lot of money or cost you a ton.
6. Never buy a property with an insurance title or with a lien on it
Having a lien means that you still owe someone money used on that property. For example, if you borrowed money to renovate your property; you might have a lien on your property until you finish paying your lender.
In order words, your lender has the legal rights to sell your house in case you fail to pay them back.
For this reason, if you are buying a property; you need to make sure that there is no lien on the property before you give them your hard earned money.
You can also solve this problem together with the seller and the lender. This way, you know for sure what you are getting into and no other strings attached on top of your agreements. If you don’t do your homework, you might incur more liabilities in the future.
7. Never buy a house without a defined master bedroom
Every buyer and renters out there care about master bedrooms a lot. A house without a master bedroom is equivalent to a house that needs renovations. If you are into flipping properties, houses without master bedrooms could be a good opportunity. You can buy them at cheap prices and add master bedrooms into them to increase their value.
However, if you are buying the house for yourself, this might be a bad investment. You might not be able to sell your house at a good price in the future due to the lack of a master bedroom.
8. Never buy a property with just 1 bathroom
These types of properties can be good deals or not depending on the square footage of the property and the type of investments you are pursuing.
If you just need a property to live in and don’t mind how many bedrooms, you can get a property with one bedroom. However, this could be a mistake. Later in life, you might want to sell the property and it could be a nightmare for you.
There are not many buyers who are looking for a property with one bathroom. This is because people who buy properties usually plan for the future. They need houses they can grow in and there is no way a family can grow in a one bathroom house.
On the other hand, if you are flipping properties; a one bedroom could be a great deal. There is one condition, though. The property will need to have enough room for expansion. Maybe it has enormous rooms and from there you could squeeze another bedroom in there. Or the property has a big yard and you can add another bedroom to it through expansion. You only need to do your homework.
9. Never buy a D property if you are not ready for renovations
From this post, we have seen that D properties are real old or completely vandalized. A property that is real old has every possible problem. The structural integrity is questionable when a house is old. You uncover a ton of problems when you renovate an old property. These problems include but not limited to foundations problems, termites damages, leaky roofs, cracked walls, etc.
The cost to renovate such property could be almost the same as buying a new property. Therefore, think twice before you buy D properties. Should you choose to buy a D property? You need to get the property inspected before paying a dime. We have covered benefit of property inspection in this article. Feel free to check it out for more details.
10. Never buy a house that is not inspected
You should always get inspection on each property you buy. The inspector will give you a big picture of the property. He will tell you if the property has major problems such as plumbing, electrical, roof leaks, sank foundation, etc. He will save you a ton of money and frustrations.
The cost for property inspection is not too much. It can be as little as $500 or as much as thousands of dollars depending of the size of the property. Therefore, this price is small compared to how much the inspection saves you.
11. Never buy a house that is being shorted
Owners of houses can decide to sell their houses as an attempt to avoid auctions. This happens when the properties lose their values to a level where it does not makes since to keep paying mortgages on them.
For example, let us say that you buy a house for $400,000. A few years later, the market crashes and your property value slides to $100,000. If you keep paying your regular mortgage, you will be paying a $400k mortgage on a $100k house. If you do the math, you will see that you are paying 4 times the amount you are supposed to pay on the current value of the house.
At this point, it does not make sense for you to keep paying the same mortgage you agreed with the bank. Unfortunately, the bank will not let you pay a mortgage based on the current value of the property. The bank will be losing if this happens.
The only choice you have is to negotiate with the bank and see if you can attempt to sell the property. Your goal is to sell the property at above the current value or at the current value and give whatever you get to the bank.
Why should you avoid these properties?
There is nothing wrong with these properties. Instead, there are a lot uncertainties involved with properties being shorted. Paperwork can take months sometimes a year to finalize the deal. Why? If the seller find a buyer, he will have to talk to the bank about the selling price. Then, the bank will have to analyze the price and decide to accept it or deny it. If the bank accept it , the seller will continue through the selling process.
Sometimes, the bank denies the price. Once the price is denied, the seller will have to decline the price as well. The seller will then put the property back on the market for a higher price.
It can take months for banks to respond. If the answer is not positive, you will need to start over or increase your offer. If you are in hurry, this might not be the best option for you.
