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If the seller provides incomplete records, including tax filings, or doesn’t have them at all, this usually indicates that the seller has something they don’t want to disclose. Look sharp if …
The current owner doesn’t claim to have any rent rolls, or the rolls show less than full occupancy.
The records you receive show that the current tenants regularly pay late.
The rent the seller says they’re getting doesn’t match the rest of their records.
It’s possible that issues in these areas could mean the landlord is just a disorganized person, but it’s more likely that these are signs that something else is awry.
Landlords should be able to provide receipts for recent repairs as well as records of the history of the property’s ownership, the vacancy rate, and the unit pricing.
One of the easiest red flags is the curbside condition of the property. If the roof looks patchy or it’s missing shingles, your client should ask for a five-year certification on the roof in the purchase and sale contract.
Similarly, if the siding is falling off or the paint is peeling, you’ll need to do a close inspection of the siding for rot or mold. This evidence of disrepair can’t be ignored as it demonstrates that the previous owner wasn’t invested in the upkeep of the property. These exterior flaws are signs that there may be even bigger problems inside.
Some deferred maintenance can be okay if the property is listed under value, but these can also be signals that you’ll encounter big expenses after closing. A home inspector can help confirm that your client isn’t accepting a price cut for a house where there’s been a major roof leak that has rotted the entire structure of the house.
The condition of the town is almost as important as the condition of the property itself. To inspect a city’s health, find out if it’s experiencing negative growth trends. If jobs are leaving town and no new employers are coming in, this may not be the right place to buy a rental property.
Even if the town population remains flat, this could indicate that you won’t be able to raise rents in the future, despite costs like maintenance and property taxes that continue to add up. If your client can’t realize additional equity through increasing rent, they’ll be stuck raising it to match inflation. And that won’t help them meet their financial goals in the short- or long-term.
The age of the property isn’t a problem in and of itself, but if a property is from a certain era, that may signal a number of other issues.
Ask your client to evaluate their own competency in a realistic light: Many landlords look for old homes because they have the ability to handle the issues that come with those older homes, but if you don’t, it’s a potential trap that will cost a lot of money. These issues may be …
An unstable or shifting foundation.
Outdated electrical knob and tube wiring.
Asbestos, which makes renovation expensive as remediation is required by law.
Chipped or flaking lead paint.
Whatever the issue, get a good home inspector who knows to look for specific construction issues that may be tied to a home of a certain vintage.
Owning a rental property in a high-crime area may mean that your client or their property manager will be in close contact with local police and fire marshals, but it may also mean that they’ll be in increased contact with tenants. This time investment is not to be underestimated.
There are a handful of ways to look up the crime level near a property, but Trulia crime maps and city data should provide helpful visualizations.
Not all environmental hazards are a problem, but it’s important to be aware of the local risks and the insurance costs that come with them. For example, if there are nearby rivers, lakes, or oceanfront, know that your client will likely be required to purchase a very expensive flood insurance policy to protect their investment and their tenants. This cuts into their cash flow.
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