Getting Too Attached: When to Walk Away from a Real Estate Deal

It’s no secret that dealing with real estate can stir up a lot of emotions. There are, however, some red flags to keep in mind in order to enjoy more excitement (and profits) than anxiety (and losses). If a deal sounds too good to be true, it may very well be.

Here’s what to look for:

There’s No Immediate Income Potential

Ideally, you’ll want to invest in a property that will bring you a steady stream of reliable income rather than one that promises a higher payout at some point in the future. That point may never happen – leaving you out of money and out of a way to recoup your investment quickly.

There’s Little to No Income Documentation

Don’t invest in a property based on vague estimates for things like rental rates, year-to-year profits or vacancy numbers. You want the seller to prove hard statistics, otherwise it might not be as profitable as they claim and you won’t see the return on investment that you were expecting.

The Property is in a Poor Neighborhood

The best real estate deals are those made in growing neighborhoods where property values are poised to grow. The last thing you want to do is invest in a neighborhood with a bad reputation, high crime rates, properties in disrepair and overall decline. It’s possible that the property itself may be in good condition or offered at a considerable discount, but if it’s surrounded by other properties which are lackluster or it’s located in a less-than-desirable area, you probably won’t realize much profit on it.

The Property Needs an Infusion of Cash Upfront

If the property you’re considering has a lot of buyers competing for it (something that often occurs in ultra-competitive areas), or it needs a lot of cash in order to fix or renovate it and make it more appealing to tenants, it might not work out as an investment or bring you the kinds of returns you’re looking for.

The Property is a Development Deal

Development deals made for prospective construction for either residential or commercial plans can be complicated, long and drawn-out processes. It’s also possible that even with the best development plans, the end result never happens. Unless you have prior experience making these kinds of deals or you can learn from an experienced partner or team, it’s best to look elsewhere as development deals can be too high-risk for the average investor.

The Property is Located in Another Country

International law, particularly property low, is a murky area that requires highly-knowledgeable and experienced legal counsel. Unless you understand another country’s property laws to the letter, international real estate may not be for you. There are greater risks and complexities involved, in addition to fluctuations in that country’s economy and currency.

Since there’s no way to guarantee that every property will net you a profit, it’s wise to stay away from those where you have less experience or those that will require a lot of work or time to realize the results. That being said, however, real estate investments can be a great way to diversify your investment portfolio. You’ll want to carefully weigh the pros and cons and invest in properties that are most likely to give you the best possible return.

And if you’re looking to secure funding for your real estate investments and don’t have time to wait for the bank to get you approved, a hard money loan may help. Call us at (818) 584-2424 to learn more about hard money lending and discover how our California private money lenders may help you get the financing you need for your real estate investments.