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The Biggest Threats To Your Real Estate Investment Property And What You Can Do To Stop Them

by Chris Clothier on June 2, 2014 · 5 comments

  
Your biggest Real Estate Investment Threat

All sorts of strange things can affect the value of your property.

Most, however, are not so outlandish. Some you can control, and some — well, you really can’t. Knowing what can affect the value of your property will help you make the right adjustments and keep you from making an unfortunate mistake that you can’t do anything to fix.

If you find yourself watching your property value dip, there may be a reason for it that can’t be chalked up to the state of the market. If you want to work on increasing property value, a good place to start is by looking at what’s bringing it down and seeing what you can do to turn it around.

Location

Related: Never Fail At The Location Game EVER Again.

You know the saying, so we’re not going to repeat it again.

But location is everything when it comes to your property. Bad location? Your value is going to tank. Proximity to garbage dumps and power plants, for instance, can drag value down, particularly in highly populated, expensive residential areas. Surroundings are always, always important to your real estate value.

Your Neighbors

Neighbors, unless they’re also your tenants, can be problematic.

Sometimes you can’t tell when neighbors are going to be trouble from a quick glance. Sometimes they might not be trouble but because of a criminal record, your property value can suffer.

Noisy

This can be caused by people or by pets.

Party animals, constantly bickering couples, loud pets or otherwise disruptive neighbors can hurt your property value. Prospective tenants will probably visit at different hours of the day to see what the noise situation is like.

It’s important that you know what it is, too. It’s not always as obvious a problem, especially when you yourself aren’t living on the property. Noisy neighbors aren’t only the bane of apartment complexes — they can hurt houses, too.

Hoarders

Granted, not all hoarders have junk on their lawns.

In some cases, you can have a hoarding neighbor and never know it. But sometimes…you definitely know it from the exterior. Untended, overgrown lawns with rusting, old or paint-peeled things in the neighbor’s yard will affect your real estate value. All the curb appeal in the world won’t save your property when the view is the awful state of a neighbor’s yard.

Criminal History

They may never pose a threat to your tenants, but having an identified sex offender in your complex or neighborhood can negatively impact property value.

A study by the American Economic Review showed that properties neighboring a sex offender’s home drop in value by as much as 12%. Before you buy, check the National Sex Offender Registry to avoid that kind of hit to your value.

Outdated

Hey, good news!

Here is something you can do something about. Renters are picky. They might not want to fool with the potential of a space. If kitchens and bathrooms are outdated in both style and appliances, they’re likely to move on instead of moving in.

Updating goes a long way to increasing property value along with your chances of actually getting someone to rent it. Pick a few important projects to invest in that will give you the most bang for your buck. Get those updated (and matching) appliances, get granite (or granite-looking) countertops. Your real estate value will thank you.

Bad Floor Plan

While a bad or quirky floor plan might not have mattered so much in the past, it’s the buyer’s market now.

Remember how I said renters are picky? Still true. Open floor plans are trending and awkward layouts, particularly those that are cumbersome or confusing, are just going to hurt your value. Sometimes, you can remedy this by taking out walls, but be sure that’s an investment you’re willing to make.

Lacking Curb Appeal

Related: 6 Ways to Make a Good Impression to Make More Money in Real Estate

You know this one!

When a house doesn’t look homey and attractive on the outside, few people are going to want to come home to it — and that will make your value suffer.

Take care of peeling paint, make sure plants and flowers are healthy (but well groomed) and that the lawn is cut. On the inside of the home, make sure there aren’t holes in wall or stains on appliances, floors or ceilings. You want your property to look and be nice for your tenants.

There are many factors that can affect your real estate value. Control what you can, think ahead before signing on for something you can’t, and work on increasing property value at every turn. You won’t regret it.

What do you do when there’s a threat to your property’s value?

Let us know in the comments!

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{ 5 comments… read them below or add one }

Eric June 2, 2014 at 6:24 am

Often, the largest threats to an investment property is the investor themselves. The threats are self-induced.

They buy into a HOA that has rental property restrictions, and immediately want to put in a renter against the guidelines. They bought into the HOA because of the way it was run, now they don’t want to live by the rules. Eventually the quality of the HOA goes down, along with property values.

Investors bring in under-qualified tenants that do not pay the rent, or cause neighborhood issues. Or the bad tenant poisons a multifamily building, so that quality tenants do not want to live there anymore.

Investors do not figure in the many expenses that can go wrong, and are under-capitalized. They cannot leave a place vacant, and do not know how to fill it. They have 3 deals in the works, and do not have time to manage the deals they have already closed.

I am not worried about locations and floor plans. I see these before I buy. The one thing I can control is tenant quality and investment basics. Take care of those issues and your problems are minimized. Then, go buy a larger wheelbarrow as your profits will not fit into the wheelbarrow you have.

Reply

Chris Clothier June 2, 2014 at 7:02 am

Eric –

“Often, the largest threats to an investment property is the investor themselves. The threats are self-induced.”

Great observation! I could not agree with you more, but from a writers perspective I’ve written that line a million times. I searched for a few different things in this article.

You on the other hand did the heavy lifting for me with your comments. They are excellent and I appreciate you sharing them with the readers. I consider myself now to be a seasoned investor and pretty good at making investment decisions. It took a lot of self-induced mistakes to get to where I am now.

Bottom line is there are no shortcuts and trying to find them could be the biggest reason why we ourselves are the biggest threat to our portfolios. Again, thanks for reading and taking the time to leave your comments.

Chris

Reply

Mohammad Asaduddin(Asad) June 2, 2014 at 7:57 am

Thanks for bringing the overall perspective on rental houses. I have been guilty of taking under-qualified tenants, not budgeting for big items like roof and HVAC and paying heavily on emergencies. I recently got started with an assistant manager/Maintenance person to keep up the houses. How it works out is yet to be seen.

Reply

Chris Clothier June 2, 2014 at 8:40 am

Hey Mohammad –

Let me be the first to commend you for recognizing the need to grow and delegate and then for actually following through. Your willingness to spend some money on help may be a reason you actually make more money going forward. I hope that you have made a good hire and do a great job of training. That would be a big thing for you! Keep me informed on how it goes.

Thanks for reading the article and taking some time to leave your comments.

Chris

Reply

Jordan Thibodeau June 5, 2014 at 5:42 pm

Chris, excellent post.

Reply

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