Red Flags When Buying a Rental Property?

Question

What Are Some Keys Things to Look at When Looking to Purchase a Rental Property?

Chuy Gonzalez · Answer

If you are getting an inspection...confirm if a roof inspection is covered or not. If you are buying a 2 story place with a flat roof...you wont be able to see the condition. Just looking at the roof with binoculars from the ground isn't enough.

David Faulkner · Answer

I seek out properties with deferred maintenance of the cosmetic sort, and then offer a price that is appropriately discounted and fix that deferred maintenance to add value. This is a very good strategy for building equity in the short term if you know what you are doing.

The caveat is that I want a property with deferred maintenance that is surrounded by other properties in good shape ... if the block is filled with other properties that also have a ton of deferred maintenance, then that is a sign that the neighborhood may be in decline and a red flag.

Also, I like to drive by at different times. If you drive by a lower middle class hood in the middle of the afternoon on a weekday and the streets are filled with cars, those are people who are not going to work. If on a Friday evening the neighbors are sitting on lounge chairs in the front lawn smoking something that is not a cigarette, blasting music, and every so often a car rolls up and some sort of fast transaction/exchange is made, that would be a red flag. If there are homeless roaming the streets INSIDE the neighborhood (not just on the corner at the convenience store), that would be a red flag. If there are lots of properties boarded up, vacant, with tall weeds in front ... red flag.

Kelly N. · Answer

We bought a 4plex with lots of red flags- deferred maintenance- and were aware of most of the issues and expected to find more once we owned the place. A few  things that stick out in my mind-

1.  Leases that make the tenants responsible for all interior maintenance.  It might be ok in a single family home, but I don't think it is wise to expect a tenant to fix a leaky toilet, or the various other minor things that happen with normal wear and tear.  In the 4plex we purchased, two of the toilets had been leaking for so long that we had to replace the bathroom floors and subfloors.

2. Carbon Monoxide Detectors- there were carbon monoxide detectors mounted on the walls in two of the apartments.  I didn't think too much of it at the time (perhaps a cautious tenant had bought it?) so I wasn't concerned.  Rentals in this area must have an inspection by the building department every 2 years (this one was over due) and provide an HVAC certification every 4 years (had been done 3 years prior).  We closed on the property in September, and had two new furnaces by Christmas- both started having issues, and the tech found holes and cracks and CO leaks.  I suspect that the only way the certification given by the company that had checked the equipment was if the owner agreed to install the CO detectors in the units with the problems.

3. Substandard tenants for the area.  This particular landlord didn't screen tenants and didn't have income requirements.   They hadn't been given move in condition sheets to fill out, so even when they moved out we had no way of knowing what damage these tenants had caused vs. what it had been like when they moved in.  There are hollow core doors throughout the property, and I don't believe there was a single one without a hole in it of some sort, plus damage to drywall, carpet stains, missing vent covers, the list goes on.

Needless to say, it has been quite a project.  We were able to get it at significantly below the going price per square foot, and have made vast improvements, so it wasn't a bad investment, just labor intensive.

Jeff B. · Answer

Something called "deferred maintenance" - - current owner has done little or nothing during their ownership and the buyer will have to do all the catch-up.  Sadly, it's hard to discern and you have to have the Approval of Inspection Reports to determine what is needed and to estimate it's cost.   Be very careful offering AS-IS in this regard.

Red Flags When Buying a Rental Property?

Most Popular Reply