QOTW: What are your "hard pass" items when evaluating real estate

Fort Worth, TX · Member since 2020 · 1k+ posts · 2k+ votes

Welcome to our Question of the Week! We have a lot of people who are entering the world of real estate investment who could use your wisdom. When evaluating a property, what are your automatic no or exclusion list items and why? Was there an experience that caused you to exclude them? How did you handle that experience?

Let's help each other learn to analyze a deal quickly and effectively. Share your thoughts!

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Sean Ross

Member since 2022 · 137 posts · 115 votes

Saw a SFH with 87 windows.

That would be a hard pass from me!

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Michael P. Zembower Jr.:

Required repairs that will put us upside down on the investment. It’s amazing to me that some sellers have a difficult time acknowledging the scope of work is extensive and the sale price should permit us to be below market value after the overhaul renovation. Then again, there’s always a buyer 🤦🏻‍♂️

especially tear downs.. the seller wants the value of his lot like it was ready to go day one. never a thought to the cost of demo lead and asbesto's remediation dump fees etc etc.. so lot value is usually 50k less with a tear down on it. I am in the process of buying one probably that has a bunch of stuff on it oil tankes etc.. and the seller is going to remove everything I told him I would pay him 150k more for it if he does all the remediaiton and delivers mean a clean ready to subdivide parcel.. worth it to me.
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James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
4y
There is no item that is an automatic "no", there is only items that have an associated price-tag to them for making corrections, or to mitigate risk factors, or simply for mental damage of dealing with it.
There is a number that anything works, the only automatic "no" is if a seller is not willing to meet that #.
2 Reply
Karissa Sampson
CO · Member since 2020 · 63 posts · 40 votes
4y
Properties with an HOA. Theoretically an HOA seems like a good idea, but realistically most are corrupt and dysfunctional organizations that charge too much and as an owner I have no control over the fees.
2 Reply
Troy Albers
Rental Property Investor · Fleming Island, FL · Member since 2019 · 85 posts · 104 votes
4y
@Jon S.
For a STR pools can be a plus because you can generally get quite a bit more $$ per night and be more desirable to the guest, thus offsetting some of the possible added costs of the pool.
2 Reply
Eric James
Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
4y
I need to be able to force appreciation of at least 20%.
2 Reply
Katherine J.
Investor · Member since 2019 · 2 posts · 0 votes
4y
@Jennifer Buchholz
0 Reply
Katherine J.
Investor · Member since 2019 · 2 posts · 0 votes
4y
@Jennifer Buchholz
Second this!
0 Reply
Carlton B.
Rental Property Investor · Milwaukee, WI · Member since 2013 · 281 posts · 133 votes
4y
I agree with @JD Martin that Real State is an investment and there should be no hard passes. Run the numbers and if it makes dollars and sense then pull the trigger.

2 Reply
Bonnie LowPro Member
Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
4y
D class neighborhoods. Often hard to get banks to lend on them, more tenant problems, property damage, higher turnover, difficult to get contractors and trades to provide service, property management agencies often won't take on D class neighborhoods. There are always exceptions, of course, but this is common. I struggle with this because I see the tremendous need for affordable housing but when I run the numbers it never pencils.
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Brian Badolato
Rental Property Investor · Sacramento, CA · Member since 2021 · 23 posts · 8 votes
4y
@Alicia Marks foundation issues
1 Reply
William LokarBusiness Member
Realtor · Northeast TN and Central VA · Member since 2021 · 53 posts · 39 votes
4y
My only hard pass is if the adjacent properties are real eyesores. I just can't control other property owners and landlords; I figure I can handle the rest if the price is right.
1 Reply
Taylor Ratliff
Member since 2022 · 19 posts · 9 votes
4y
We try to stay away from foundation issues and drug homes.
1 Reply
Logan McKay Zylstra
Realtor · Provo, UT · Member since 2020 · 374 posts · 270 votes
4y
I know it works for a lot of investors but FOR ME investing in states that favor tenants.
1 Reply
Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
4y
I am not really sure what to say except it's all about the numbers and of course I do not want to be in an D area . As long as I am about 20% net cap, I am good
All the best ,
1 Reply
Patrick DruryBusiness Member
Real Estate Agent · Columbus, OH & Cleveland OH · Member since 2021 · 1k+ posts · 2k+ votes
4y
@Alicia Marks
Properties with caving in foundations
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Quote from @William Lokar:

My only hard pass is if the adjacent properties are real eyesores. I just can't control other property owners and landlords; I figure I can handle the rest if the price is right.

That's a great point!
1 Reply
Ahmad Francis
Contractor · Member since 2021 · 9 posts · 3 votes
4y
A mortgage is a hard pass for me, especially when your just starting out. But you have to be handy and willing to learn new trades.
0 Reply
Jon S.Pro Member
Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
4y
Quote from @Troy Albers:

@Jon S.
For a STR pools can be a plus because you can generally get quite a bit more $$ per night and be more desirable to the guest, thus offsetting some of the possible added costs of the pool.

That was my thought, I just wanted to be sure of the accuracy that a pool is a plus for a STR, so thanks for confirming. I wouldn't pay to add a pool to a home, but if I can buy a pool home in a good airbnb location, that might be of interest, especially since appraisers don't give pools much value.
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Jon S.Pro Member
Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
4y
Quote from @Bruce Woodruff:

Quote from @William Lokar:

My only hard pass is if the adjacent properties are real eyesores. I just can't control other property owners and landlords; I figure I can handle the rest if the price is right.

That's a great point!
I’d say for me this rule has some exceptions. For my own personal residence, this is absolutely the case, but for investing, the exceptions to this rule would be in cases where the area is a transitional neighborhood opportunity, as those ugly properties will soon get snapped up and repaired by investors or the next home owners. I currently have a nice property in such a neighborhood and its amazing watching all the low priced houses getting repaired and renovated, not to mention neighborhood values going up. Assuming the buy price has priced in the disrepair of the neighborhood, that might be a deal I would be interested in. I suppose the downside scenario would be a significant recession slowing the transition, and then waiting years for the neighborhood transition to get underway again.
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Alex Talcott
Attorney · Durham, NH · Member since 2019 · 292 posts · 126 votes
4y
Not that I can think of!
I'll exclude people, not properties.
There are places I won't invest (Syria, Somalia...). Rule-of-law is my #1 business and political value.
If there are people associated on the ownership-sell side of a deal, I may stomach a deal with them and then avoid relying on them, certainly their representation of me, in the future (and document them for an internal 'black list' for my colleagues).
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Alicia MarksPro Member
OP
Fort Worth, TX · Member since 2020 · 1k+ posts · 2k+ votes
4y
Quote from @Patrick Drury:

@Alicia Marks
Properties with caving in foundations

I looked at one last week that I nicknamed "Alice in Wonderland house" because the foundation bowed 5.5" to the middle, rose 3 in the center front to back, and the drop ceiling in the kitchen made it seem like a fun house. I offered lot value and he passed, it's now contingent at almost double that. ARV is about $50k more with at least $30k in foundation, and the roof is totally shot. There's a fool born ever minute, but it won't be me.
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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Quote from @Alicia Marks:

Quote from @Patrick Drury:

@Alicia Marks
Properties with caving in foundations

I looked at one last week that I nicknamed "Alice in Wonderland house" because the foundation bowed 5.5" to the middle, rose 3 in the center front to back, and the drop ceiling in the kitchen made it seem like a fun house. I offered lot value and he passed, it's now contingent at almost double that. ARV is about $50k more with at least $30k in foundation, and the roof is totally shot. There's a fool born ever minute, but it won't be me.

Yeah, let somebody else learn their lessons on places like this.....!
1 Reply
Thomas Morley
Real Estate Agent · Laguna Niguel, CA · Member since 2019 · 13 posts · 8 votes
4y
I recently looked at street view for a MLS property and it had 4 cops outside the house!!! hard No! right now i'm looking and 2-4 units and to have my partner on board our unit has to have a private washer and dryer and I garage to park her car. Anything that doesn't have those two things or affordable potential to have those things is an automatic no.
0 Reply
Brian Langstrom
Inspector · Naples · Member since 2022 · 27 posts · 17 votes
4y
When the cost to make it liveable is higher than the value of the property. Here in Naples, there are locations, Naples Manor, Bayshore old sections, Normandy Dr area, that the prices are at stupid levels. They are asking $450,000 FOR A 1900 SQFT DUPLEX, 2/1 OR 2/2 and the rent currently is $900 monthly. I spend $50,000 to make it liveable, it is still in a terrible location and I have to accept subsidized rent to even rent it. When the turn hits later this year, the thing will be worth $325,000 and I own it at $500,000. Rent maybe goes to $1200 or even $1500. You do the math, terrible return if I need to dump it. Your loan is based on $450,000...Brian doesn't make profit.
Also location is always key. If you see them dealing drugs across the street, you will not get quality tenants. Burned out cars, pitbulls running loose, no grass, just dirt in the yard....run don't walk.
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Joshua MessingerBusiness Member
Property Manager · Poconos, PA · Member since 2020 · 443 posts · 264 votes
4y
It all starts from the backend in my opinion! Any deal can really be taken on if the numbers work well and it's situated in a growing area. But, if you don't have the right team members calling the shots and making the right decisions any deal could go south extremely fast.
Other things I would look out for otherwise are foundation issues, septic issues and how good the neighborhood is where the house is situated.

[email protected]484-986-5012
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