Look we all love getting a good property deal and there are some properties that just need a little TLC but some people go to extreme lengths to save money, which ends up costing them a lot more in the long-term.
When we are playing real life Monopoly, you’ve got to be careful what you buy as buying cheap isn’t always the best way.
We do our due diligence to make sure you end up with a great property in a great area that can be rented to great tenants!
We all have a natural desire to look for the lowest price, but sometimes cheap isn’t always worth it. Here are our top 4 reasons to avoid those ‘bargain’ deals.
1. Hidden Issues
One of the biggest reasons to avoid these types of properties is pretty obvious; you’re probably getting a deal because the house has quite a few problems, and has a lot of work that needs to be done.
When looking at a deal that seems too good to be true, the likelihood of having a lot of hidden problems is very high. These repairs can be a serious undertaking from both a time and money perspective.
Cheaper homes are typically older as well, so the overall age of the home may require more maintenance over time; raising the overall costs and decreasing your return on investment.
2. Location, Location, Location
Another common issue with those ‘bargain’ homes is their location. Property values in these kinds of areas where house prices are cheap can be volatile. They may appreciate slowly in good times (or maybe not at all), peak late, and then depreciate quickly in bad times.
A lower price is usually indicative of declining property values in the area. If the area is struggling with lower property values, this may come back to haunt you when it comes to property appreciation and planning your exit strategy later down the line.
Make sure you investigate things like amenities, local schools, transportation links, crime rates and any other issues that may be in the area.
With property, location is the most important factor to consider when investing. A good rule of thumb is to think like a tenant when deciding where to purchase. If you think a tenant will choose a better property in a nicer area, shouldn’t you as an investor think the same way?
3. Limited property values
So, the property is structurally sound and the location is good. You buy a home, renovate it and make it ready for tenants. Surely, that means your property value will skyrocket, right?
Well not always. Even with all the potential improvements you want to make, the neighbourhood itself will have a big impact of what your property is worth. Every property has a ceiling price which is usually set by others in the neighbourhood.
Look at other properties similar to yours in the neighbourhood. What prices were they sold for? If they are relative low, this could be indicative as to why this prospective property is as well. This could be a red flag to stay clear.
4. You will struggle to attract the right type of tenant
As explained above, a property is generally cheap for one of two reasons, it needs a lot of work to bring it up to a good standard and/or the area is less desirable.
Unfortunately, no matter how nicely finished a property is, the area will still determine the amount of rent that you can charge.
With cheaper rents, you’ll get different types of tenants living in your property. Typically, if your tenants are not paying much for something, they will not feel as obligated to treat the property well either.
In an ideal situation, you want good quality tenants who will rent from you long-term. Most tenants will want to live in safe, clean environments, so buying the cheapest house in a bad neighbourhood will probably not get you the best tenants or appreciation.
Cheap properties are cheap for a reason. Whether it’s the location, the lack of renovations, or the neighbourhoods themselves, you’re going to find out why this seemingly good deal isn’t worth it in the long run.
Want to start your property investment journey?
If you want to start investing in property but aren’t sure the difference between a good and a bad investment, why not rewatch our latest Property Investment Masterclass? Through this on demand webinar, we go through the types of properties we purchase and what makes them a good investment as well as show you how we can take all the hassle away from property investing. Watch it here