6 Signs You’re Buying a Bad Deal

6 Signs You’re Buying a Bad Deal

2 min read
Sterling White

Sterling White is a multifamily investor, specializing in value-add apartments in Indianapolis and other Midwestern markets. With just under a decade of experience in the real estate industry, Sterling was involved with the management of over $10MM in capital, which is deployed across a $18.9MM real estate portfolio made up of multifamily apartments. Through the company he founded, Sonder Investment Group, he owns just under 400 units.

Experience
Sterling is a seasoned real estate investor, philanthropist, speaker, host, mentor, and former world record attemptee, who was born and raised in Indianapolis. He is the author of the renowned book From Zero to 400 Units and the host of a phenomenal podcast, which hit the No. 1 spot on The Real Estate Experience Podcast‘s list of best shows in the investing category.

Living and breathing real estate since 2009, Sterling currently owns multiple businesses related to real estate, including Sterling White Enterprises, Sonder Investment Group, and other investment partnerships. Throughout the span of a decade, he has contributed to helping others become successful in the real estate industry. In addition, he has been directly involved with both buying and selling over 100 single family homes.

Sterling’s primary specialities include sales, marketing, crowdfunding, buy and hold investing, investment properties, and many more.

He was featured on the BiggerPockets Podcast episode #308 and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single family investing and apartment investing to mindset and scaling a business online. He has been featured on multiple other podcasts, too.

When he isn’t immersed in the real world, Sterling likes reading motivational books, including Maverick Mindset by Doug Hall, As a Man Thinketh by James Allen, and Sell or Be Sold by Grant Cardone.

As a thrill-seeker with an evident fear of heights, he somehow managed to jump off of a 65-foot cliff into deep water without flinching. (Okay, maybe a little bit…) Sterling is also an avid kale-eating traveller, but nothing is more important to him than family. His unusual habit is bird-watching, which he discovered he truly enjoyed during an Ornithology class from his college days.

Education
Sterling attended the University of Indianapolis.

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Finding deals is becoming more and more of a challenge for many real estate investors today. Some seem to be stretching a little too far in order to stay active and keep up their volume. There are deals to be found—just make sure you are watching out for these red flags before you close.

6 Signs You’re Buying a Bad Deal

1. The deal doesn’t match your desired numbers.

Things do change. Hard rules of thumb that other investors were swearing by five years ago might not work in your market today. Sometimes you have to become more flexible and diligent in searching for properties to keep a balance of deal flow and minimize risk. Just make sure you aren’t ditching vital investment principles. Numbers don’t lie.   

2. It’s been sitting on the market for a while.

There can be some great gems among foreclosures and abandoned property that are working their way through the process, as well as stale or expired listings. Perhaps the sellers weren’t motivated enough previously, had a bad agent involved, or simply overpriced their property.

Still, if a property has been sitting vacant or on the MLS for years, there is probably something wrong with it. If not, someone else would have bought it already. It could be a deal—just make sure you know why it hasn’t sold and do some hard negotiating along with due diligence.

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Related: Is it a Bad Idea to Buy an Apartment Building for My Very First Deal?

3. It seems too cheap.

Sometimes you may find really cheap deals that are solid. Properties may simply be far cheaper in that market, or the seller might be motivated. Still, prices tend to reflect value oftentimes. It could be that there are expensive structural repair issues under the surface, often including roofs or foundations. Or there could be zoning challenges or large past due property tax bills and association dues that the seller is expecting you to take on. Find out why it’s so cheap. Look at the value, and price any issues or unknowns into your offer.

4. It has high vacancy rates.

High vacancy rates in multifamily apartment buildings can be a sign of bigger issues. It’s possible that the previous management was completely inefficient. Or maybe there are some serious maintenance or neighborhood causes. Talk to tenants and neighbors to get a feel for this. Also, anticipate even more turnover when you take over. Some tenants are probably behind and will find it less expensive to leave than catch up. Others might not like your new management style. Factor these vacancy rates into your underwriting figures.

5. There are title issues.

Title issues can really wreak havoc on investments. You can spot some of these in advance by noticing oddities and gaps related who who is trying to sell the property and who is listed as owner in public records, as well as quit claim deeds that have been recorded. Sometimes the title is so uncertain that you can’t get title insurance. Your next buyer may not be able to either, and that puts your entire investment at risk. 

marketing-presentation

Related: 10 Rental Property Red Flags You Should Never Ignore

6. The market shows poor local fundamentals.

A good investment is as much about the location and local economy as it is about the individual property you are looking at buying. Are population and jobs growing, or are those on the decline? Check out this article for a list of some of the data points I look at before investing.

Summary

There are indeed good real estate deals out there. But they may be harder to find today and require more investigation and negotiation. Watch out for these six red flags and complete your due diligence before going to closing if you want to keep your returns in the green.

What signs do you look out for?

Let me know with a comment.