Our consulting services sometimes mean we’re working with individuals buying properties intending to flip them, and they’re looking to us for advice on whether a property is viable.
The trouble is that right now prices are sky high, and we’ve seen a lot of investors on a mission to acquire as many properties as possible.
In certain situations it can make sense, such as when the strength of the dollar is in question and one may want to shift assets from cash to property holdings as a form of security. That tends to be more the case for the very wealthy, though.
Most of the anecdotal scenarios we’ve seen this year deal more with the type of investor that doesn’t have dozens or hundreds of holdings, and is investing a good chunk of their liquidity into one or two new purchases.
It might be trite to point out that buying a home while prices are high is risky, especially when the market is bound to plummet at some point in the near future because it cannot continue as it is.
But there’s more.
Do Your Due Diligence Before Purchasing Anything
As we often find, the best way to give advice is with an example. So here’s one of a fellow we talked to recently that made a poor decision that cost him deeply.
He bought a home for $85k as an investment, and that home is already only worth $10k.
Whoa, right? What could possibly have tanked the value that hard, even now?
A hasty buying decision meant not doing a thorough enough inspection, and not retaining a professional team like ours until after the purchase to start asking certain questions.
Those missed details included two crucial things:
- The home is full of asbestos that had never previously been dealt with. The cost to do that now is high, and no one is going to buy a home knowing that needs to be done (being that it’s a known carcinogen).
- The home was advertised as having 3 bedrooms, but really only has 2. That’s because the third room is in the basement and does not meet all the requirements to count as a finished space, such as egress windows and finished walls. It can’t be a bedroom, officially speaking, if it’s not a finished space.
Now he’s in a position where he owns a home he will likely never get his investment back out of. Not only because of the costs involved to resolve the asbestos and finish the basement so it actually has 3 bedrooms, but because $85k in a high will not even be $85k when demand drops.
It’s not to tell anyone not to invest in real estate at all right now. But plan carefully and do your due diligence. Some properties simply aren’t worth it, or would only be worth it at a greatly reduced price by haggling.
But you can only know to walk away or to haggle if you have all the facts.