Buying an investment property is a great way to diversify your investment portfolio. You can rent it out to create another income stream or flip it for an immediate profit. However, you have to be careful when purchasing an investment property, because some homes won’t provide good returns.

If you buy a property in an undesirable area or a house that needs costly repairs, you may actually lose money. To help you avoid these pitfalls, here are four red flags of real estate investing to watch out for. 

Four Red Flags of Real Estate Investing

1. Undesirable Neighborhood 

The one thing you can’t change about a home is its location. If the property you’re looking at is in an undesirable or unsafe neighborhood, it may be best to pass on it. Some up-and-coming areas get developed and gradually improve over time. But that process can take years. 

In the meantime, you may have trouble renting out or reselling the property because it’s located in an unpopular neighborhood. Buying a home in a bad area may also put you at risk of property crimes like theft and squatting. 

2. Rock-Bottom Price 

If you find a property with a low list price that seems like a great deal, you should be wary. A rock-bottom price tag can be a sign that there’s something wrong with the property, like structural problems or water damage. Watch out for issues like uneven floors, cracks on exterior walls, and discoloration on the ceiling, which could indicate that the home needs major repairs. 

It’s also a good idea to have a licensed home inspector look at the property so you don’t get stuck with unexpected repair bills. They’ll be able to catch problems you might miss with your untrained eye. 

3. No Tours Allowed

If the home you’re interested in buying is occupied, it may be difficult to arrange a time to see it that’s convenient for everyone. But the seller should still do their best to work with you and schedule at least one tour.

If they insist you can’t view the property because it will disturb their family or tenant, they may be hiding something. It’s also a red flag if the seller asks you to waive your right to a home inspection. 

As a general rule, it’s best to avoid buying a property sight unseen. Photos and videos may not capture all of a home’s defects, causing you to miss potentially costly issues. Even if you’re buying a house at auction or investing in real estate overseas, you should still try to do a walkthrough. If you can’t travel to the home yourself, get a trusted friend to tour the property for you and make note of any problems they find.

4. Negative Cash Flow

A home is one of the biggest purchases you’ll ever make. So it’s wise to make sure the property you’re buying is a good investment by running the numbers. 

To ensure you’re not overpaying for the home, look up comparable properties that have sold in the area. If you’re planning to turn the property into a rental, you should also perform a cash flow analysis. 

Figure out how much you can lease the property for by comparing it to other rentals in the area. Then total up your monthly expenses, including the mortgage, homeowner’s insurance, maintenance costs, and property management fees. You should also account for vacancies in your expenses because it’s hard to keep a rental occupied 100% of the time.

Finally, subtract your monthly expenses from the projected rental income to determine your monthly cash flow. If the number you get is negative, the property probably isn’t a good investment. 

Although the seller may provide cash flow spreadsheets, don’t rely on them because they may be exaggerated to entice potential buyers. Always perform your own calculations so you can be sure the property will provide a good return. 

Buying a New Condo Can Help You Avoid Real Estate Red Flags 

Buying a condo in a new development like Liv @ MB can help you avoid the red flags of real estate investing. Since the condo is brand new, you won’t have to make any repairs or upgrades. You can feel confident you’re getting a good deal by taking advantage of direct developer discounts and pricing. It’s also easy to tour the complex on your schedule by booking an appointment to see the show flat. 

Check out this Liv @ MB review to learn more about the development and see if it’s right for you.