Friday, October 7, 2011

How to Tell When you’re looking at a Bad Investment Property

When you’re researching any investment property, it’s critically important to be able to spot trouble before it happens. One of the most difficult, and most dangerous, problems for property investors is the occasional risk of acquiring a bad investment property. These things can cost a fortune, and can do serious damage to other financial interests as money has to be moved around to cover costs and losses. The only way to avoid these problems is to ensure that you’re able to instantly identify bad risks.

Being able to identify a bad risk easily also creates a very reliable quality control for your investment options. You can discard inferior options quickly, saving a lot of time, and often a lot of money.

Defining a bad investment property

The best way to ensure that you avoid bad risks is to use a set of characteristics which will instantly identify bad or even substandard properties. You’ll literally be able to recognize a bad risk on sight.

The definition of a bad investment property is:

Any indication of over valuation- Indications include high valuations for obviously low grade premises, and a price that really doesn’t stack up against comparable properties. The vendor may have put a high price on the property for negotiation purposes, but the property is still seriously overvalued and priced for unwary buyers, not a good sign under any conditions. Avoid like the plague.

Any sign of poor maintenance- Lazy and unscrupulous sellers don’t put a cent into maintenance, and signs of covering up defects like paint jobs and tacky internal or external work are another sure giveaway. Real costs of upgrades and maintenance are likely to be very high. These properties are real sucker bait, whatever their price. Don't touch any property if you’re not 100% certain of its condition.

Sales pitches- Ironically, one of the most certain signs of a truly lousy investment property is the overdone sales spiel. A typical sales pitch for a bad investment property is usually along the lines of “great first investment opportunity” “bargain investment in a great location” or similar clichés. In practice, the investment opportunity is for the seller, not the buyer. Location is irrelevant if you’re stuck with a high cost property. You can do a lot better for much less outlay.

Fittings- Very reliable indicators of a bad investment property are the fittings, usually overlooked by sellers. Ancient wiring and plumbing is a guarantee of major problems. The old wiring is likely to be a major fire hazard and will need replacing. The plumbing can cause serious issues, particularly in terms of property structure and in apartments, the risk of causing damage to other apartments is a virtual guarantee of lawsuits.

To put the real costs of buying a bad investment property into perspective- You can buy a top quality investment property off the plan that has no defects and is brand new for less the real cost of buying one of these awful, black hole investment properties. Your capital gain will be a lot better; your rental revenue will be much higher and you won’t need to practically rebuild the place.

Minimizing costs means making more money. Avoid the bad risks and focus on the high quality properties.

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