3 Steps to Spot a Real Estate Lemon
You may think if you find a run-down house in a phenomenal area, it automatically spells investment success…
Believe it or not, even if you find a property in an incredible neighborhood, many factors can still kill a deal quickly. The Investor's Edge is here to help pinpoint these common flaws and help you avoid unknowingly purchasing an investment disaster. We seek to maximize your profits and help you avoid wasting time and money in your search for an excellent deal. Here are three steps to help you spot a real estate lemon so you can move on to far better and more lucrative deals:
1. Check out the Roof
A roof is a definite potential maintenance hazard and can potentially lose you huge profits in a fix-and-flip investment deal. If there are major slopes, grooves or weak spots in the roof, these could be indications of larger issues. Dealing with major roof problems can take a huge hit on your rehab budget. It can also potentially lengthen the rehab longer than the hard money loan term allows. Therefore, Do Hard Money refuses to lend on properties where the roof’s cost-to-cure is greater than $5,000.
What to Check Before You Purchase: Be sure to inspect the roof, gutters and shingles thoroughly before purchasing a property. Check the roof for weaknesses, plus look at the condition of the shingles. Curved, missing or multi-layered shingles indicate a roof with an age over 15 years. You want a roof’s age to be no greater than 10 years on a solid investment deal.
2. Inspect the Electric Panel and Furnace
Many fix-and-flippers allow for a new electrical system and HVAC in their rehab budget. Typically, you may need to replace these items anyway in an older house. However, if the repairs and replacements prove extensive for the electric and heating in a home, it’s a wiser choice to walk away. Like roof truss issues, a multitude of electric and HVAC problems can over-extend your budget and the timeline for your rehab.
What to Check Before You Purchase: You need to inspect these items with great care. When you find the electric panel, check to see if the house has a minimum of 100 amps. Usually, if a house does not have a 100-amp minimum, electrical issues will run rampant throughout the property. The electric system is important to inspect because it not only poses a maintenance hazard, but a fire hazard as well. In checking the furnace, make sure it operates on an efficiency of at least 80% to avoid similar problems down the road.
3. Take a Look at the Foundation
Issues with a property’s foundation can kill a deal outright. This is due to the fact that without a good foundation, the cost of repair and ongoing maintenance can minimize a deal’s profits to zero. Like with major roof issues, The Investor's Edge will not lend on a deal if the foundation’s cost-to-cure is more than $5,000. You definitely don’t want the burden of thousands of dollars of your rehab budget poured down the black hole of foundation issues. The overall cost and time it will take to solve the problem aren’t worth it in the long run.
What to Check Before You Purchase: First, look for signs of cracking on the exterior of the home. Then, examine the ground around the property. Pay close attention to any chips or blocks that seem broken or shifting. You also need to inspect the basement and look for any signs of possible water damage.
Investing in real estate is very serious business and you should definitely take your time. Don’t jump on a property immediately, even if the area is nice and the seller is highly motivated. Inspect the property thoroughly to ensure you don’t get saddled with problems greater than your rehab budget can afford. Patience is a major virtue with real estate investments and holding out for a better deal can greatly increase your overall profit and reduce your stress throughout the process. It can also prevent you from investing in a potential lemon.
Learn how to make money flipping properties with us by attending our next webinar.