The idea of investing in a fixer upper investment property is very enticing. It’s a chance for real estate investors to get in touch with their creative side and make something from nothing, an opportunity not found anywhere else in real estate investing.
Fixer upper houses are also a way for real estate investors to see a good return on investment.
Because of these reasons, real estate investors can sometimes be blindsided. They end up investing in a fixer upper investment property that turns out to be one of the worst real estate investments. Don’t end up in this situation. Learn the signs which reveal that a fixer upper investment property is not a safe investment.
Abandoned Houses Near a Fixer Upper
A sign that a fixer upper investment property is not a safe investment is the condition of other investment properties in the area. Real estate investors, especially beginners, sometimes focus so much on their own fixer upper houses that they ignore the condition of the rest of the real estate market. If there are other houses around your fixer upper investment property that are boarded up or abandoned, it’s not going to matter how beautiful and modern you make it. It will be very difficult to rent out the fixer upper investment property or attempt the investment strategy of flipping houses. Who would want to live next door to a run-down, abandoned real estate property? If you do ignore this sign, your fixer upper investment property will be a high-risk investment.
A Fixer Upper in a Poor Location
Similar to the last point, if the general location of the fixer upper investment property isn’t a good one, it won’t make for a safe investment. Is there lots of traffic on the street of the fixer upper investment property? Is there a noisy railroad track nearby? Are tenants leaving the investment properties in the area and choosing other locations? These are signs that a fixer upper investment property won’t be a safe investment.
Related: Location Location Location: What Makes for the Best Place to Invest in Real Estate?
A Fixer Upper with a Forceful Seller
Beginner real estate investors can sometimes be so keen on flipping houses and seeing a quick return that they don’t realize the process of buying fixer upper houses is going way too fast! These real estate investors are sometimes pushed by forceful sellers into quickly buying a fixer upper investment property. They don’t even get the chance to thoroughly ensure it’s a safe investment.
You have to make sure you’re calculating all the numbers of a fixer upper investment property: holding costs, cost of repairs, the market value of a fixer upper, and all the metrics for return on investment. Take your time, use an investment property calculator, and get accurate numbers to know whether a fixer upper investment property is a safe investment or not. Mashvisor has a reliable investment property calculator that real estate investors can easily use to guarantee they aren’t pushed into high-risk investments.
Related: 11 Costs First Time Real Estate Investors Should Consider
Avoid fixer upper houses with a forceful seller who doesn’t give you the time to decide if it’s a good investment! Period!
A Fixer Upper with an “As Is” Clause
“As is” is not a word real estate investors want to see in any contract for a fixer upper investment property. This means that you have to buy the investment property exactly in the way in which it is and take full responsibility for the repairs. Fixer upper houses with this clause are a high-risk investment and won’t guarantee that you end up with a safe investment after home improvements. Real estate investors who try to qualify for financing for flipping houses with an “as is” fixer upper investment property are often denied.
Make sure to always go for a fixer upper investment property that allows you to get a full home inspection. The only way to be successful in flipping houses is to know exactly what home improvements you will be making.
A Fixer Upper with a Poor Layout
A fixer upper investment property that is going to require major home improvements isn’t always a safe investment. These are the kind of home improvements that require significant changes to the floor plan of the fixer upper investment property. If the layout is bad, it’ll require complete reconstruction of some of the rooms of the fixer upper investment property. A good investment is a modest fixer upper investment property that won’t need such monumental changing.
Issues with the Foundation of a Fixer Upper
A fixer upper investment property with a beautiful interior may seem like a safe investment, right? A few minor home improvements here and there, and you’ll be looking at a good investment that will allow you to be flipping houses in no time. But what about the foundation of fixer upper houses? If the foundation has major cracks (larger than 5 mm) or if there are signs of movement of the foundation, you’ll be signing on to a high-risk investment rather than a safe investment. Be sure that the home inspection of a fixer upper investment property takes a close look at the foundation and how it will affect your home improvements.
Underestimated Repair Costs of a Fixer Upper
Does the cost of home improvements of a fixer upper investment property seem too good to be true? It just might be, especially if you’ve done a walkthrough and things aren’t adding up. Sometimes, real estate investors are handed an inspection report by sellers of real estate with cost estimates. Beware of these cost estimates and always get your own home inspection done. It may seem like a good investment on the surface, but if the repairs end up costing much more, your fixer upper investment property will be anything but a safe investment.
An Overpriced Fixer Upper Investment Property
The reason a fixer upper investment property can be a good investment is the low price. However, there are times when a fixer upper investment property is overpriced, and this is a sign that it is not a safe investment. In order to ensure a good investment, the price you pay for a fixer upper investment property should be 10-20% lower than the market value. This value should factor in what you’ll be paying for home improvement as well to get an accurate idea of return on investment.
Real estate investors sometimes avoid fixer upper houses, thinking they’ll always be a high-risk investment. Flipping houses, however, is a good investment, and fixer upper houses are one of the best ways to implement this investment strategy for a high return on investment. All you need to do is be aware of the warning signs that let you know, very clearly, that a fixer upper investment property is not a safe investment.
Related: What are the Best Low-Risk Investments in Real Estate?