Today we have another awesome question that was sent in by one of our readers:
“Cody, I think I understand what makes a great property to invest in. But what would you say are the qualities I should AVOID? What do you look for in a property to know you should run the other way?”
Little Rock, AR
First off, let me answer by saying that the answer to this will vary depending on your investing strategy…
If You’re a Wholesaler, You’re a Matchmaker
Your perception of value, costs, repairs, and what makes a great deal is going to be totally different than the rest of the world. We all have different sets of beliefs and values. This makes it really tough when it comes to real estate investing when you are trying to envision the end result.
As a wholesaler, you should never put your beliefs in the equation because when you’re wholesaling, your job is to find, control, and sell to someone else whose beliefs could be totally different.
Wholesaling is not about what YOU want, it’s about what your BUYERS want. It’s about what your MARKET wants. Think of wholesaling as if you’re a matchmaker, and the two parties that need to make a love connection are the property and the buyer.
If You’re a Rehabber, Put on Your Mom and Pop Hat
If you’re rehabbing/landlording, avoid deals with “quirky” features.
I learned this the hard way when I first started wholesaling. I bought a house that had a flat roof and all the other houses in that specific market had pitched. I didn’t really think twice because I was getting an awesome deal.
I should have looked into it a little more because that flat-roofed house really bit me in the a$$. No one wanted it. They all said it was because of that flat roof. In the end I actually lost money on that house.
Another property I got burned on was a house that had a pool. It was a gorgeous house in a desirable neighborhood, but the pool took up the whole yard. No one wanted a house with no backyard.
Of course, this is not necessarily an exact science. In one area, flat roofs may be the norm… in other areas, a flat roof could be a death sentence to your deal. It depends on the area to a certain extent.
I suggest that if you’re new to investing, until you get more experience and get your power team in place, stay away from the quirky deals.
So, rather than giving a punch list of “quirky” features to avoid, let’s take a quick look at some of the “quirky” features I’ve been bitten by before:
- Flat roof when all others are pitched (the true story above).
- Anything that just seems out of place in comparison. Is it a nice house in the middle of the ghetto?
- Functional obsolete design. Do you have to walk through a bedroom to get to a bathroom?
- Weird surroundings (RR tracks, industrial plant, power lines or a canal in your backyard).
- Extremely busy streets or at a major intersection. No one wants to hear the busy noises, have lights blinking through their window when they’re trying to sleep or have to worry about their kids or family dog wandering into traffic.
- Frankenstein houses (weird, glopped on, poorly done additions).
Okay, so for wholesaling, you are matchmaking according to your buyers’ preferences not yours, and if you are rehabbing/wholesaling, you need to stay away from the quirky stuff.
The Bottom Line
Anytime I have ever gotten hurt in investing, whether it’s just a scraped knee or if I broke my whole leg, it is because I stretched for the deal…. I didn’t go with my gut, got in a bidding war, bought sight unseen, etc.
Take off your “investor hat” and put on your “Mom & Pop homebuyer (or renter) hat” or your “wholesaler’s hat.” If you were them…would you want to live there? Are there reasons you don’t want to live there? If there are, then run. Very fast. Don’t look back.
I hope I was able to give you guys some clarity when it comes to deciding which properties you should run from and which you should buy.
Give us a Shout
Do you guys have a war story you can share with us – one in which you got burned, but it taught you a valuable lesson? Share it with us in the comments section below. Your story can help other investors avoid the same fate.
Until next time…Keep it classy, Cody