WHAT ARE YOUR RED FLAGS?
Once you understand the numbers and long term benefits of investing in real estate, the next question is often: WHERE? We started discussing this topic last week. Each list of “pros” probably has a list of “cons,” right?
In our experience, every investor has their own “no fly zone” rules. But this is fantastic! The faster you can make decisions, the easier it is to seize opportunities when they arise. And, if you already know you don’t like something, you won’t be tempted by “the latest, greatest, sparkliest” deal.
What are some common Red Flags that can narrow down your property search? Let’s start with the property itself. The big scary three: foundation issues, asbestos (hazmat) issues, and former grow-ops/crime scenes. If you “know a guy,” then the first two have possible solutions. You can factor those into the purchase price to make sure it’s still a deal. Sometimes the emotions around crime scenes, and the insurance issues around former grow-ops, can be very difficult to overcome.
Knob-and-tube wiring is another common instant refusal for many investors. And some people narrow down their search simply by the age of the property; an example would be houses that are 5 years old or less—for those investors who love move-in-ready. These choices are neither good nor bad—they simply help you narrow down your focus to your target properties.
There can be Red Flags in some communities as well. However, this is also a very individual decision. Some things investors won’t do: too close to a highway, town is too small, town is dependent on one major employer, community crime rate is too high, or even neighbourhood proximity to something undesirable (a dump, a nuclear power plant, even a cell tower). It’s your choice long before it’s your tenant’s choice.
Which brings us to another common Red Flag: the tenant profile. Do you already have an ideal tenant in mind? Well, if they don’t live in Town X, then that town is off your search parameters. As an example, if you love Blue Collar workers, you won’t find a lot of them living in Calgary’s downtown these days. Or if you love working with tenants in the tech sector, maybe you will rule out all properties that don’t already have fabulous wi-fi capabilities.
Knowing what you don’t want is just as important as knowing what you do want. Is this brief list complete? Of course not. Might your ideal qualities and red flags change 3-5 years into your investing career? Of course! But narrowing down your lists helps you simplify your search.
There is no need to be stuck in analysis paralysis based on location. And having pre-determined investing criteria limits many of the emotions that can derail a perfectly good property purchase. Does it fit your goals? Your desired fundamentals? And does the property avoid your pet-peeves and biggest concerns? Keep your decisions logical and strategic by having many of these preferences ready to go, when you’re ready to buy.
