As much as you want to know all of the skills that make a successful real estate deal, you should also know the signs of a bad one. This way, you can identify them before it’s too late and invest your money elsewhere. We just want to help you avoid the mistakes that we’ve all made at some point in our careers. So let’s get right to it - here are the signs of a bad real estate deal.
Sign #1 – Came from a questionable source
Consider where the deal came from. You should consider where the deal actually originated from. How did you hear about it or discover it in the first place? Did someone in particular, or a certain source bring it to your attention? If so, who was it? Are they credible? Do they have a reputation of identifying promising opportunities that turn out for the best, or are they known for picking ones out that crumble under further inspection? The bottom line here is that you want to make sure your source has been proved credible in the past before getting too far into a deal. Be sure to understand their motives as well, and what they may be getting out of the deal for themselves. This will help you to assess any claims they could make.
Sign #2 – Lengthy stay on the market
Typically, the longer it’s been on the market the worse. This is never a good sign since good deals are typically snatched up instantly. Although you might be telling yourself that everyone else has just overlooked it and you see something special, this is likely not the case. Not to say that it can never happen, it just doesn't happen very often – especially properties that have been on the market for a while. Generally, the longer a property is on the market, the more likely it is that you’ll see its price drop.
Sign #3 – Inspection difficulties from seller interference
This should be an immediate warning sign. Anytime a seller refuses your request for certain inspections, it's really hard to ignore the fact that it feels like they're hiding something from you. Of course, you don't want to come across any unwanted surprises at a later date so you should be very suspicious if this happens to you.
Sign #4 – There’s something about the location
Sometimes, no matter what the physical property is like, the location can ruin it. Whether it’s in a bad neighborhood or some other factor, know when to pass.
Sign #5 – It’s hidden in the paperwork
Do you due diligence and don’t skip over the paperwork. This is where you will discover insights about the investment opportunity you are truly facing. Despite what everyone may be saying about the property, you should verify with your own eyes in case something was skipped over mistakenly.
Sign #6 - There is simply too much to fix
Even if you are looking for a fix-and-flip, you need to be aware of how extensive the required repairs actually are. There comes a point when it’s not even worth it. You should also consider the different types of repairs that are needed and whether they are structural. Structural repairs tend to be where it can get costly – though, it also means that you can drive the purchase price down further.
Ultimately, if you’ve done your research and have had successful deals in the past, you can also rely on your gut instinct. So long as none of these warning signs above are present, go with what feels right and avoid anything suspicious. Part of investing does come down to intuition.
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