As a Dayton real estate investor, you know better than anyone about how tempting it can be when a hot rental property deal shows up, promising big returns and fast cash. You have likely seen some examples throughout our market and others nearby: five-bedroom homes selling for next to nothing or fixer-upper apartment buildings offered at an unbelievably low price.
Surely they must be worth it.
But are they, really?
Every investment comes with risks, but buying a low-cost deal that seems too good to be true can be extra risky. There may be a lot of extra work and a list of additional expenses that you don’t immediately expect. Remember – rental property is a large investment. You need to know what you’re getting and what you’re really paying.
Any investment deal can be a good one with the right due diligence. But, think about your return on investment (ROI) and your investment goals before you dive head-first into an investment property that may come with some caveats.
We want to make sure you’re not making any easy and expensive mistakes.
Buying Investment Properties Off Market
You may not be getting your money’s worth when you buy an investment property off market. It might seem like you’re getting an amazing deal, and in a market that’s been so competitive recently, it’s easy to jump at many of these offers.
Slow down, think about your investment goals, and make sure you’re making the right real estate investment, and not just gravitating towards the properties that are available and affordable.
There are obvious benefits to buying an off-market home. You have more room to negotiate. The sales typically are not advertised very widely, you’re working against less competition, and you’re likely to find yourself paying less than you would if you had found such an opportunity in the regular MLS listings.
Do your due diligence. In our experience as Dayton property managers, these low-priced off market deals usually have something going on that isn’t immediately obvious. You could end up spending more than you expected just bringing the property up to habitability standards. You may find there’s more work involved than you anticipated, and it might not turn out to be a great rental property at all. If the home isn’t in a desirable neighborhood, and you cannot imagine tenants being eager to rent it, this may not be the best investment property for you.
Dangers of Deferred Maintenance
A lot of the available investment properties that are advertised as a “steal” or a “gem” or “needs some TLC” often have a lot of deferred maintenance. On first glance, they look fine; the walls are solid and the floors are fine and everything appears to be in good shape. Look a little closer, do some due diligence, or go through the property with an inspector, and you’ll find there’s a long list of problems that are going to be expensive to repair.
In many cases, sellers will try to get rid of these properties off market specifically so they don’t have to do all of the work that would be required if they were listed on the traditional market. They don’t want to invest the resources in improvements, upgrades, and sometimes even basic maintenance. That means you’re already at a disadvantage in terms of what the seller is willing to provide. If they’re not willing to replace a dilapidated roof or pull up rotting floors, negotiating other points of the sale will not be easy.
It’s easier to find yourself in over your head when you actually buy a property off market because you liked the price tag, but then you find yourself needing to make expensive repairs. This will not only cost you a lot of money initially, it will also delay listing and renting out the property. Your income is stunted and not immediately reliable.
Distressed Properties and Market-Ready Rentals
If a price seems too good to be true – trust that instinct. It likely is too good to be true. There’s a reason no one else has scooped up that property. There’s a reason you’re not fighting for it with dozens of other buyers. Don’t trust the advertising and the marketing. A distressed property is not a “gem” just because it’s cheap.
There can be savings when you buy a property off market that needs a lot of work. If this is part of your investment strategy, it makes sense that you would seek them out, do your due diligence, and then make a plan for how to turn that high-needs real estate investment into a high earning piece of rental property.
If buying and fixing up rental homes is not a specific part of your investment strategy, however, look for other opportunities. You might find a property that is listed slightly below market rates. Such a discount tells you that there are a few maintenance issues that will need your attention, but it’s still a valuable property that would sell well on the open market.
Any price with a higher discount than 10 or 15 percent off the market rate should make you suspicious. When a seller is willing to go that low, you know there’s probably something very wrong with the home, and it’s best to look for something else.
We always recommend that you partner with a Dayton property management company before you invest in any property, and especially a distressed home or an off market property. You need a licensed real estate agent in order to close the deal, and a professional with property management experience can help you understand exactly what you’re getting. We can also help you plan how to pay for those things.
Let us be part of your due diligence process. We can make sure you’re protected and aware of what you’re really buying. We can provide a full Pre-Purchase Analysis, which tells you everything you need to know and includes some worthy recommendations.
Contact our team at ManCo Property Services.