It can be very easy for investors, old and new, to get caught up in a property that looks great on paper. They may think they can hit a home run if they make a few tweaks and a few things go their way. However, if a deal is too good to be true, it usually is. This is not to say that you can’t find great investment deals. Just remember that you need to look at the risks associated with every deal. A listing may sound great, but often times there is more than meets the eye. Be smart and know what to look for in an investment property. More importantly, do not trust someone else’s property description without conducting your own research.
The first thing you need to understand is that every seller will want to make their property appealing. This may be common sense, but too many times investors will get excited by a property solely based on the description alone. The information could have a large amount of truth to it, but may not tell the whole story. Use their description as nothing more than a starting point to conduct your own due diligence.
If the property says it needs some TLC, odds are there is a good amount of work needed. The listing may attach a number to this work, but you still need to get your own estimates. There is a huge difference between the cost to get the work done and get it done the way you would like. Get your own numbers and go from there. The same can be said regarding area rent or sales comparables. A realtor or seller can find comps that may support their value, but there may also be differing ones in the area as well. If the numbers don’t match what is on the listing, bring that up with the realtor or seller. Their rent numbers may have been based on estimates after any repairs are done to the property and not actual rents received.
They may also paint a rosy picture about the area and neighborhood. A park may only be a mile away, but it could be old, small and not suitable for young children. Get a feel for any neighborhood you are considering buying in by driving the area and seeing what is around. The listing may say that there is a new factory or other building proposed for the area, but that may have been in the works for years and ground not even broken yet. The bottom line, like anything else, is that you need to do your own due diligence and get your own answers.
A good description can make any property sound appealing, but you need to do your due diligence and make sure it is a fit for your particular exit strategy. If you are considering an offer solely based on someone else’s words, you are setting yourself up to inherit someone else’s problem.
