I recently had a question come through on my website from a young guy who had purchased a home and got in a little over his head. Wait, scratch that – he got in WAY over his head. He needed the income from a basement rental unit in order to pay his mortgage, but the house had so many problems it wasn’t even liveable. So not only did he need to renovate the rental unit in order to make it legal, he had to renovate the entire home before he could even move in. He didn’t anticipate the number of problems when he purchased the home, and with his limited budget there was no way to make the numbers work.
As I read through his note I felt really bad for him, but the more I read the more I thought he should have seen what he was getting into. All the real estate warning signs were there, but unfortunately he either didn’t recognize them, or he chose to ignore them. What’s even scarier is that not only did the house fail a building inspection, but the inspector said he would never let a child of his live in the home – and still he bought it!
Unfortunately for this particular homeowner the best advice I can give is to sell it as quickly as possible and try to get as much money back as you can. For everyone else who is thinking of investing in a property pay attention to the warning signs in the listing.
- “Attention Renovators” – the house needs a total redo from top to bottom.
- “Fixer Upper” – a cute way of saying it’s a disaster.
- “Needs a little TLC” – needs a ton of your money.
- “Sold in ‘as-is’ condition” – the seller knows there are a lot of problems and isn’t interested in negotiating.
- “All the Work Has Been Done For You” – recently renovated and likely a flip house. Pay close attention to the quality and workmanship as it was likely renovated in a hurry and with maximum profit in mind.
- Listing Has No Photos – the house probably doesn’t show well. I always maintain that you should still go and look at houses that don’t have photos in the listings. Most people skip right over them so you can sometimes get a great deal (I definitely have!) BUT don’t expect that it’s going to be in great shape.
None of this is to say that you shouldn’t seriously consider purchasing one of these homes. If you’re smart about your finances and you budget properly there’s a lot of opportunity. But what it does mean is that major renovations are required and you need to be prepared to spend a lot of money to get it where it needs to be.
Buying a house can be a very emotional process. And when you have visions of rental income dancing in your head it can be easy to ignore the real estate warning signs. But you have to remember, when it comes to investing in real estate you have to fall in love with the numbers before anything else.
For more information about how you can avoid becoming a real estate horror story check out my post about 5 things you NEED to do when shopping for a home. And feel free to share more of your ideas in the comments. I’ve said it before and I’ll say it again – knowledge is power, and when it comes to real estate investing you can never know too much!