Despite the fact the investment into the property is likely to be one of the largest financial transactions we will make, most of us are poorly prepared to ensure a good purchase decision is taken.
Buying a property is stressful both to seller and buyer. Your goal as the seller is to make your property look as good as possible in as cost-efficient manner as possible. Therefore, the cheapest and easiest things to do are paint, change light fixtures, clean, and redo the floors. As a buyer, you need to look beyond the cosmetics to see what’s really going on.
So, to be fair enough we decided to write about warning signs to be checked before buying the property. Of course, they are not the end all be all. If you like the property and are aware of both pros and cons, you will be able to negotiate the price accordingly to ensure a great deal.
The Right Neighborhood
We already wrote that buying an investment property in a bad neighborhood is one of the worst things a real estate investor can do. As the adage goes, real estate is all about location, location, location.
The worst neighborhoods will typically offer subpar occupancy rates, poor rent growth, and low appreciation. This all compounds to create an unfortunate situation for investors: you may struggle to find tenants, charge reasonable rental rates, or even resell the rental property for a profit. So, don’t let low price tags fool you into thinking you’re automatically getting a good real estate deal!
Don’t waste your time or money investing in a property located in a poor or declining area. Once the area is known as bad, unsafe, or slummy, it will take a long time to lose that stigma for potential tenants and you won’t be able to charge enough to make your money back.
The numbers don’t make sense on paper
As a beginner real estate investor, there’s a good chance you fall into this trap: overpaying. There can often be quite a large rift between the listing price and market value, as a property seller may overestimate the value.
One of the best things you can do in this regard is to study your real estate comps. Comps are properties of similar specifications, and within a comparable region, that have sold in recent months. This data can go a long way to informing whether your selected property is overpriced. To avoid real estate deals gone bad, a real estate agent can be very helpful in these cases.
The bottom line is that you expect to make money from your investment in any property you buy. So, if the seller won’t budge on a rather high price for a property after it’s been on the market without selling for quite some time—then that’s a sign to forget about this one and move on to a better investment.
If the seller rented the property out but can’t provide you with statistics on rentals vs. vacancy rates, neighborhood allure, year to year profits, etc., it’s probably wise to guess that the success rate for rentals in the building is low. Never enter a deal blind—move on to the next profitable investment.
Ownership history
Just like when you see a resume which shows a new job every year, a home with high turnover is also a serious warning sign. I consider high turnover as any home with an average ownership length of three years or less per owner. Of course, if the seller is not the property investor selling it after refurbishment.
In Georgia you can easily check homeownership online. It is highly recommended to perform the due diligence procedure on a property prior to purchasing it, in order to verify if there are any hidden flaws and to see if the property itself matches with the information provided in the purchase documents.
Thus, persons who are interested in this matter can easily verify at the Georgian Public Registry relevant information on the property and its owner; matters such as debts, litigations, mortgages and any crucial information on the owner of the property can be obtained through an extract issued by the institution.
The property inspection
The inside can smell fresh from that wonderful floor varnish and paint, but the exterior could cost you a fortune if you don’t pay attention. Check the property and the building for visible cracks and find out their nature.
If you conceal water damaged areas with paint, you trap the moisture in the walls that will likely lead to mold. Black mold is unhealthy to breathe. Look carefully at the underside of drawers and sinks in the kitchen. Look at the base of the tubs and toilets. One of the biggest culprits is the sheetrock underneath window sills. If you see soft or warped sheetrock, you know there are leaks.
Uneven or bouncy floors. Deflections may be costly to fix because you’ve got to rip out the existing floor, find a matching floor, and finish it to match the original flooring.
Too much maintenance for the money
Sure, all of us have seen a lot of apartments and houses that look like great investments online or on paper. But when you actually go see the site with my own eyes—it tells a slightly different story. A property in decline or one that has been neglected for far too long might cost more trouble than it’s worth if you expect to make a profit.
Additionally, it is worse to check how much the seller pays on a monthly basis by communal bills. Knowing average bills will give you the picture if the property is warm or cold in the winter. As well as will give you the opportunity to understand total maintenance costs.
Talk to neighbors
If you still have doubts about the building, price etc. simply talk to neighbors. Ask them all questions you are interested in. It is great that people in Georgia are open and ready to reply to any questions: How do they like to live here? How do they like the building maintenance which is to be done by the construction company? Is the building warm? Do they have the problems with the light, water or gas regularly? Do they know if a lot of flats are under rent out? Maybe they know how much the average rent rate in this building is. Talking to neighbors will give a lot of interesting and useful information to make right decisions in your investments.
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