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Real Estate Warning Signs

Never fall in love with a deal. It can happen to the best of us. The property “looks” fantastic, the initial inspection goes well and the price is unbelievable. You want it to work out so badly that you overlook warning signs. Getting into a bad relationship with real estate can cost you dearly. Take off those rose colored glasses and always be prepared to walk away. Here’s a few “just say no” situations I’ve run into.

When searching for fix and flips the goal is to find the absolute worst house in the best neighborhood. In these cases you’re essentially looking for problems. But there are problems and there are PROBLEMS. One such red flag is finding hazardous conditions. If there is mold, lead-based paint, or asbestos that has been left untreated by professionals – walk away! Those are headaches you don’t need.

Three other warning signs for me are hillside developments, major foundation issues and properties requiring HOA approval. Hillside developments tend to involve pricey and extensive engineering work which erodes potential profit very quickly. Last year I bought real estate that I planned to renovate and flip. However, as soon as we started pricing out the project we discovered that it was cost prohibitive. It was a good learning experience. These hillside projects require so much more engineering and structural work before you can even begin aesthetic updates. Instead of going through with the flip, I got the permits and paperwork up to date and sold it off.

One of the biggest lessons from that hillside project was that foundations are big ticket items that are not easily visible from a regular inspection report. This is true off all real estate no matter the location. I once opened escrow on a property but had to eventually cancel was because of a crack in the foundation. We didn’t realize its severity until a licensed professional assessed the damage. The cost would have wiped out any profit.

HOAs can be as big of a hassle as any foundational crack. They tend to be filled with people who have too much time on their hands. They knit pick everything to death – slowing down the rehab process significantly. I’ve learned to start a dialogue with the HOA before even purchasing the property. Recently I got written consent from the board members prior to escrow for approval on renovations. I’ve been burned in the past and now try to avoid that at all costs!