Rental Property Red Flags to Watch For
It saddens me to say so, but not everyone wants a turnkey investment property. While turnkey is the strategy I recommend most to the investors I work with – I’m a turnkey provider, after all – I also know that it’s not for everyone. Some people want to be more hands-on with their investment; they want to find a fixer-upper, make the repairs, and rent it out themselves. And that’s fine! It’s a lot of more work and potentially a lot more money, but really, you have to do what you feel is right for you.
So that’s who I’m talking to today – all you folks out there who want to buy those dumpy houses and turn them around. I want to offer you a few tips I’ve picked up over the years, after having bought literally hundreds of dumpy properties myself, because even if you’re not on Team Turnkey with me, I still want to see you succeed!
Here are 4 red flags to watch for when scouting potential rental properties:
- The Stench – You know how everyone’s house has a unique smell? It can be good or bad or just plain weird, but it’s there and it’s obvious and it’s not going away because houses tend to hold odors. Well, there’s one house smell that I’ve encountered while property-shopping, and it’s known simply as The Stench. You’ll know it when you smell it, because it will literally make you gag. It usually contains a delightful combination of aromas like pet urine, cigarette smoke, rotten food, and mildew/mold. Mmmmmm, right? Well here’s the deal: to eliminate these lingering smells, you’re going to have to do everything short of burning the place down and starting from scratch. I’m talking replacing the floors and maybe even the sub-floors, major cleaning with disinfectant, and priming the walls and ceiling with an odor-blocking paint. It can be done, but just be prepared that it won’t be as simple or cheap as opening windows to air the place out.
- Structural issues – Any sort of foundation or structural problems should send up major warning signs. These repairs are usually very expensive and take awhile to complete, and the chances of a recurrence in the future are higher than you may think. While the only way to find out the true extent of damage is by having a structural engineer come out, there are some signs to watch for, like cracks in the basement floor or drywall, doors and windows that don’t line up, and sloping floors. While these are definitely concerns, they don’t have to be a dealbreaker if you love the house. Put on your best negotiator face and get that price down to compensate for the problems!
- Non-conforming bedrooms – Non-conforming bedrooms are a tricky area. While they function as a bedroom, and your tenants may be totally fine with them, a problem can arise when you go to sell. What you’re able to count as a bedroom when renting suddenly doesn’t qualify as an official bedroom anymore, at least when it’s factored into the property’s value. Sure, this can be helpful in the beginning when you’re buying a property because the price will be lower, but it’s definitely something you’ll want to think about when it comes time to sell. The gold standard for rental properties is 3 bedrooms, and selling a property with less than this can be more challenging and won’t net you as much, either.
- Mold – Who wants to live in a house with mold? Pretty much no one. If you’re eyeballing a potential rental that has a mold problem, beware. You must remediate that situation before you can get tenants in there, and mold removal can be expensive. Costs can range anywhere from $500 for the simplest cases to upwards of $6,000 if the mold has spread to multiple areas of the house. The type of mold that’s present can also have an impact on the price tag, as more dangerous molds require specialized cleanup. You also have to consider how the mold got there in the first place and if it could happen again. For instance, mold growth as a result of water in the basement could lead to more repairs to prevent water from coming in.
These are just a few of the red flags I watch for when buying new investment property. Of course, all this can be avoided by using a turnkey investment strategy (hint, hint), but again, it’s not for everyone. If you plan to buy and rehab your own rental unit, be on the lookout for these and other issues that could mean increased risk.