Top Reasons to Walk Away From a Rental Property
Today what we are going to talk about are the top reasons to walk away when purchasing a rental property. As an investor I have had many times where I have purchased properties. Some were mistakes that I should have walked away from and others they were good deals. So, what we are going to talk about today are some of the things that I have learned. Some lessons in buying bad purchases and others ones that I have learned from making good acquisitions.
So the first thing is, does it fit your business model? A lot of investors that I talk to do not have any kind of business model. And if you don’t have a business model, you need to get one, first of all. You need to have a goal as to what type of properties you want. You need to write it down and you need to stick to those goals and you need to always refer back to them.
When you are looking at a deal you always want to ask yourself; does this property fit what your goals are? And if it doesn’t I say you walk away from it. Do not become emotionally attached, if it doesn’t make sense do not move forward. Do not buy a deal just because you like the area or you like the yard or you like the bedroom. Or because it reminds you of when you were a kid. Always make your decision based on numbers not emotions. Always be prepared to walk away and find reasons why you should not walk away. A lot of people who are always trying to buy the deal and trying to reason why they shouldn’t. I kind of look at it the other way. Look for reasons that you should walk away and if there is not, then go.
Not enough liquid capital when you do purchase a property or contingency plan. Don’t buy a property assuming that nothing will go wrong. Always, always have a contingency plan. Even if it is a brand new house, have a contingency plan. Obviously, the older the home the higher the potential for maintenance costs and the potential for things to break.
Also, lower income properties are probably going to have a higher tenant turnover. With higher tenant turnover you are going to have higher management fees, higher costs for getting the property rent ready, and other things like that.
If the area does not fit your business model. So for example, let’s say it is a declining neighborhood or the area is a high crime area or maybe bad school districts. Those are all things that you want to make sure that they don’t fit what your business model is and the types of properties you want it may not be a property you want to go for.
And lastly, just if the information doesn’t add up. If for some reason you were told something and you found out through your own due diligence and what they said. Maybe they are not disclosing all the information and you are learning about it as you go. Obviously if the numbers don’t add up that is something that you definitely want to look at walking away. If you can come up with a reason or do some due diligence to figure out why. But, most importantly if it does not fit your business model I would say it would be best to walk away.