March 14, 2014

Property Red Flags: Part 1

Buyer beware for property red flags! Check out this excerpt from the Amazon #1 Best Selling Book, More than Cashflow from our guest blogger Julie Broad from revnyou.com.

Our First Investment Property

It was the fall of 2001. The real estate market had been in rough shape for a long time but I’d decided it was time to get my money working for me – and real estate was the way I wanted to do it. My boyfriend at the time, now my husband, joined me in the plan. We searched high and low for a property that would work when we finally settled on this duplex in Nanaimo, BC.

It had sat on the market for a year before it slipped into foreclosure. We worried that we were missing the big reason why someone else hadn’t bought it already. The only drawback we could see was that it was on a steep driveway. It was so steep that when it was icy, tenants had to park on the road and carefully walk up the lawn to get to the house. Not a great situation but it seemed to us that it was a property with a lot of potential.

Each side had an unfinished basement; so we could actually turn it into an illegal fourplex if we wanted to. And, the property was definitely undervalued. We bought the property for $159,000 and within 12 months we had a nice positive cash flow of $300 per month. Since then, the rental rates doubled, along with the value.

While the hill was definitely a red flag for us, the numbers on the property looked great, it met our objectives, and it’s future potential for rental income growth was very appealing. We could reduce some of the issues with the hill by adding stairs, so we went for it.

We sold it in 2009 and made over $180,000 between appreciation and mortgage pay down. It was a great first deal but we wouldn’t buy a property like that again. That steep drive way was a big deterrent for tenants in slow times and it was a serious consideration for buyers when we sold. Even with the stairs, we really couldn’t change the biggest problem with the problem – the slope of the driveway.

The point of this story is: be aware of the things you can’t control or change – whether you are buying your own home or an investment property. Getting a good deal because of an issue isn’t really a good deal if that issue is always going to be there or can’t be changed.

Want to know a few other red flags to watch our for when you’re buying? Look out for Part 2 soon!

—

Julie Broad is a residential real estate investor in Nanaimo, BC, a #1 Amazon Best Selling author, speaker and investing coach. Connect with her at her website www.revnyou.com where she shares hundreds of videos, articles and real estate investing tips to help you in your business.