Types Of Properties To Avoid As An Investor When You Buy Investment Real Estate

Investment in real estate is always associated with risks for your money, no matter you finance a deal with your own cash or take a bank loan. What is real estate investing risk in terms of bad types of property? We are considering them down below.

Why real estate is connected with risks?

Becoming a landlord is not for everyone – only for diligent, hard-working people who are able to calculate incomes and expenses fairly, not falling in love with properties when estimating them, and having what it takes to deal with tenants and fix broken things. In addition to the possibility to lose the money you invested in many ways when dealing with a property during the process of owning it (which we have reviewed in other blog articles), there are options of money losses at the very beginning of your journey – when you consider buying it.

To fence you off a possible bad decision, we’re considering the types of properties you should avoid as an investor.

1. Weird objects (in the footage, configuration, amenities, furniture, materials of finishing, colors of interior/exterior, etc.). What you really need as an investor is to pay attention to regular objects, which are of interest for your primary tenant profile.
2. Those having too high association fees paid to HOA. While it is normal to pay up to $200 monthly to HOA, if you’re searching for your first or second object, you should avoid luxury properties, which would require high sums for things, which might not be interesting to regular tenants (like gym, tennis court, security cameras, or valet services). It’s ideal to find objects that don’t have a mandatory payment at all, which will surely cater to wider audiences, so people can choose themselves what they’re willing to pay for (like pest control or shared pool maintenance).
3. Objects unusual for your area. For instance, properties for students if there is no university around.
4. Objects in declining neighborhoods and the ones located in areas with an increasing crime rate.
5. Properties for flipping if you aren’t an expert in them. Otherwise, you may land on low-quality real estate, which is better to be crashed to the ground and completely rebuilt to bring some money, which you won’t be able to sell or rent otherwise.
6. High-rise and high-density apartments. While these might be alluring objects for young families and poor strata of tenants, these qualities are exactly those, which make such tenants bad payers. If you don’t want to lose your money by non-receiving payments and frequently changing tenants, then you should avoid having such objects in your portfolio (unless you specifically own them for a very low cost of purchase and resulting high ROI).
7. Investing in real estate funds, which only have 1 object of property under their management. You shan’t risk your money buying shares or giving investments otherwise in such funds if they don’t have a diversified portfolio. That’s especially so if the properties they own are season-linked (like ones located on sea resorts, where a season is 6 months a year at best).
8. Those objects requiring you to pay off a bank loan with all the money you gain from rent. If you don’t have a sheer spare of money left on your hands after all obligatorily deductions, then you will become immediately broke should anything happen that would lower or take away your monthly cash inflow. You shall never ever consider your first property with zero financial results. It’s always better to buy cheaper. If you don’t have such options right now, then simply don’t invest & wait for a future opportunity.
9. Avoid properties based on their locations: closer than 500-1,000 feet to airports, railways, open city metro lines, large transport hubs with a constant movement of cargoes and people, seaports, etc. Certainly, noise and vibration will make you regret having such an object in your ownership. You should do your investment in real estate with lower risks – people won’t be renting these places for a nice price.
10. Ones with too cheap finishing. Many developers today prefer to finish apartments and houses with extra cheap interior and exterior materials, some of which won’t even last a season (or the very first rain!). If you see MDF instead of timber, all plaster walls instead of more solid materials like brick or tiles, hollow internal doors, carton tables, entrance doors made of tin (which you can actually tear apart with bare hands), or cheap hinges, then you should immediately realize that refurbishing (or rather re-finishing) such an object into a quality living/working area will take around 30-50% more of its initial price. Or, alternatively, your monthly fixing expenses will rocket sky-high in the very first month.

Conclusion on the matter of subject

Searching for an object of investment shall be something that you rigorously examine and check before making any final decision. Remember that if you can’t find a good object now, it is always better to wait longer in the hope to find something of better quality than buying something terrible and lose your money.