Know When To Walk Away From A Real Estate Deal

Dated: July 15 2020

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If the deal looks good from almost all angles, walking away becomes the most difficult decision to make. However, it is essential to note that the ‘perfect property’ is not the only prerequisite to a successful real estate investment. You should also ensure that the buying process is as smooth as possible.

Otherwise, walking away may just be the way forward. Proceeding with a real estate investment with a faulty buying process will most likely lead you to problems. This article has highlighted these “faults” and how to spot them in the buying process.

Let’s get to it.

Issues uncovered by home inspection

The home inspection is an integral part of the home buying process. This is why we recommend that you work with a professional home inspector to help. An inspection will reveal the condition of the property with regards to the electrical wiring, foundation, structure, and plumbing. You will know from the inspection if there is a need for renovation or repairs. The problems uncovered may be simple issues that are cheap to fix – stained wood floors, outdated fixtures, broken sockets, and peeled paint. You may still proceed with the deal in this case.

However, if the problems uncovered include high radon levels, serious mold issues, unstable foundation, defective heating system, faulty wiring, or other advanced problems, that may be the first sign to walk away from the deal.

Issues revealed by title search

By title search, we mean assessing previous tax records, deeds, and similar financial transactions associated with a property. A title search helps to verify the true owner of the property in question. It also proves if some encumbrances or liens may hinder the transfer of the title. A quick trip to the county office of the property area or a check through online records will reveal the necessary information. Alternatively, you can work with a title search company to handle the assessment for you.

You may want to back out of the real estate deal if any of the issues described below emerges:

Illegal deeds or similar deed problems are caused by the allocation of ownership to an undocumented migrant or an individual with inconsistencies in the documentation of marital status.

Disputed boundaries and similar issues are usually associated with small pieces of land. They are hardly easy to resolve. So, you should avoid such deals altogether.

Liens on the property, such as attorney’s liens, judgment liens, mechanic’s liens, or tax liens, are red flags in a real estate deal. Do not proceed with the deal except the seller pays off the liens before closing the deal.

Unfamiliar heirs is a real estate problem that arises when the property is being sold by someone other than the original owner of the property. This may be due to the demise of the original owner. The problem is there are many heirs in this type of situation, most of which are not notified of the sale.

Issues like this may lead to legal faceoffs on the property in the future. Low profitability as indicated by the real estate investment analysis. It is not enough to identify juicy real estate deals; you must also properly analyze them. The analysis will focus on the investment property, the neighborhood it is located, and the highest and lowest listing prices of similar properties in the same area.

Your findings will determine if the property offers a high rate of return or not, the monthly expenses involved, the cash flow, occupancy rate, rental income, and ideal rental strategy. Overall, you should only deal in properties that offer positive cash flow and excellent ROIs. Anything contrary to these is clearly a red flag, and you must walk away from the deal.

High Homeowners Insurance

Paying for homeowner's insurance is compulsory on a newly-bought investment property. The insurance covers the occupants of the property and the property itself. Homeowners insurance fee differs across the board. This is why you should do a background check on the possible fee you may pay on the property you are about to buy. The factors that determine the homeowner's insurance rate include foundation type, construction type, size in square footage, location, and time of build. Properties with liability-like features and those situated in high-risk areas will obviously attract overpriced homeowner insurance. Such properties are not the ideal real estate investment properties, and you should walk away from them.

Burdensome Deed Restriction

Deed restriction or restrictive covenant describes a statement that guides the use of a property. The limitations in a deed restriction must be followed by all the future buyers of the property. Although you can revise them, it requires serious efforts, much time, and many legal bills. This is why you must go through the deed of restrictions of a property before making an offer. Ensure that the limitations contained in the deed are acceptable and friendly. You do not want a property that forbids you to expand its capacity, repaint in another color, presence of pets, integrating facilities like garages, workshops, or pools, remove trees, or add fences.

An investment property with a deed of restriction that outlines such limitations is a red flag.

Final Thoughts

Combining the already tedious buying process with other avoidable real estate investment problems will always be counterproductive in both short and long runs. Hence, you should learn to identify these red flags as early as possible and avoid such deals at all costs.

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