There are a few times when an investment property for sale should be avoided at all costs. Usually, the main reason for abandoning a property is the lack of a positive cash flow.
Mashvisor has put together a list for you with all the types of investment properties to avoid. (We also provide you with all the tools you need to buy a property successfully. Click here to learn more.)
Investment Properties that Need a Lot of Upgrades
If you are a beginner real estate investor, you should aim to start with low risk investments. In real estate investing for beginners, low risk investments show you the ropes without letting you take any big falls. While these may not be the best real estate investments for a high return on investment, they will help you avoid losing money. Any investment property for sale that needs a lot of upgrades should be considered a high-risk investment.
Use comparative market analysis tools such as a neighborhood analysis tool to find great properties in your area that are profitable low risk investments. Then, use an investment property calculator to measure your potential positive cash flow and negative cash flow so you can assess the property correctly.
Related: Investment Property Calculator for Analyzing Real Estate Investments
Any Investment Property You Haven’t Seen Yourself
Any investment property for sale will seem amazing in photographs. Real estate investing for beginners can be tough in that way. However, you should never make a rookie move like buying a property you haven’t inspected yourself. Since it’s your money, no one will be more diligent in inspecting the property than you. Real estate investing involves a lot of hands-on work, especially in the buying process. Decide whether your investments will be short term rentals or long term rentals before you check out the property. Ask a realtor and other experienced investors for help but always make the final decision after you’ve seen the property.
Investment Property in the Wrong Location
Lots of properties will have amazing pros and very limited cons in terms of amenities and cost. However, you should not only be thinking about properties as an investor but as a buyer/tenant, too. When you see an investment property for sale, ask yourself what kind of tenant would want to live there. If, for example, you are looking at a property you really like, think about how much rent you will be getting for it given the location it is in. Use a rental property calculator to find out how much rental income you can be getting from this property and if it is worth it.
An Investment Property that Is Expensive to Maintain
Depending on the rental strategy you choose along with the demographic of renters, an investment property with too many amenities might cause more loss than gain. For example, if you see an investment property for sale that has a pool, you may think it’s a good way to attract potential tenants. However, long term tenants will probably not be looking for pools as a reason to rent a home. If you are renting on a long term basis then a pool might cause you to lose more than you gain because you will be paying for maintenance of the amenity. Think about a potential tenant and put yourself in their shoes before you buy an investment property.
Property You Love Too Much
Sometimes when you see an investment property for sale that you are too in love with, you go a little overboard with trying to make it perfect. This is a dangerous territory for a new real estate investor. Thinking about a property with your heart rather than your brain defies the purpose of the investment which is making it a source of income. When you google “houses for sale near me”, remember that the property is for someone else to live in. What you should be thinking about is using an investment property calculator to find out whether this property will do well for you strictly from a business standpoint.
Investment Property with Bad Neighbors
Steer clear of any investment property for sale with unfriendly or bad neighbors. Bad neighbors may not affect your return on investment but they could cause a headache in other ways. Noisey neighbors may get your tenants calling you all hours of the day with complaints. On top of that, bad neighbors could potentially affect your short term rentals vacancy rates. If you rent your property out as an Airbnb, bad neighbors could cause you to have bad reviews which will cut the number of guests booking your property.
Related: Should I Buy a Rental Property in a Bad Neighborhood If It’s Really Cheap?
An Investment Property that Exceeds Your Budget
It’s easy to get into the excitement when you see an investment property for sale. The potential you see in an investment property will have you feeling overwhelmed and might have you forgetting the basics. One of the basics of being a successful real estate investor is sticking to your budget. Your budget was set as a result of research and is part of an investing plan. Don’t buy a property that exceeds your budget just because you like it. At the end of the day, if you can’t afford it, you will be losing. You should always utilize investment property analysis tools to find properties that are within your range.
An Investment Property that Can’t Generate Rental Income
A huge mistake many beginner real estate investors make is buying an investment property for sale that they can’t rent out. These properties are often bought with the intention to sell when the market price increases. This is a huge mistake to make especially as a beginner. If you simply buy and hold the property without using it, you are just wasting time and a valuable asset. You have no assurance that the price of the property will ever increase. In fact, the investment property for sale now at a good price may decrease in value dramatically. Steer clear of this type of investment and always think about generating a positive cash flow with your investment as soon as possible.
Related: How to Go About Buying a Second Home for Rental Income
All in all, there is one rule you must always follow when you see an investment property for sale. The rule is to never buy an investment property that will have a negative cash flow. Always use a rental property calculator such as the one provided by Mashvisor to find out what type of cash flow the property yields. The best real estate investments are those that have you making money off the bat instead of spending it. Remember to stick to your budget and utilize your investment as soon as possible.
To learn more about how Mashvisor will help you make faster and smarter real estate investment decisions, click here.