Responsible Ownership as Investors
I know I'm preaching to the choir. But, somehow I feel this still needs to be said.
Buying an investment property has financial implications in many ways.
More than the obvious ROI and property appreciation, my big question is did you get an appraisal? I cringe when I saw a recent out of state investor pay $300k on a 4 plex on the east side. The person she bought it from had just recently (within the prior 6 months) paid 1/2 that amount to get it himself. In a matter of months, he doubled his $ selling it. It certainly wasn't an issue of the seller buying, flipping it, then selling; he did nothing to the property. AND...the state of the property was beyond disrepair. I'm of the belief the out of state investor didn't know about the seller's quick profit but also the buyer had no real clue as to the fair market value of that property. Can I tell you how valuable an appraisal would have been. A retorical question, but what if this buyer spent $600 to find out it was worth much less than what she paid for it? The elephant in the room is the property is in serious need of work...the building in many ways is NOT to code. I maybe understand paying higher for a property needing next to nothing in work; but sadly, this isn't the case.
As an investor, are you getting an inspection? If not...shame on you. Don't complain later about needing a replacement furnace 6 months after you bought the property. Don't complain when the entire bathroom plumbing needs to be rebuilt upon immediate occupancy. I'm not saying the inspection is a scare tactic and you should walk away...quite the contrary...but oh how it's useful in negotiating the purchase price based on the findings.
I alluded to it on another blog post. But who are you involving yourself with in the purchase of an investment property? Is the wholesaler you're buying it from also out of state? Are you using them to flip the property once you buy it? Months after closing on the transaction, you're finding out you need to complete a rental registration, lead safe certification...requirements you didn't know about at time of purchase because your out of state wholesaler either didn't know or didn't care to pass on the info.
I have an owner whose wholesaler facilitated the purchase of a 4 plex and the wholesaler occupied the units with tenants from a program. The program took homeless people off the street (in the tent communities in Cleveland) and are paying for the tenants rent for 12 months. The elephant in the room is at the end of the 12 months, the tenants are required to take over the rent payments. The rent payments are high enough that it is extremely unlikely these tenants can afford to stay (when you factor in income must be 3x the rent). The program might be great for social welfare advocates but it does nothing to provide long term stability for the property itself and the income it's expected to generate. What's worse is the out of state investor is finding this out after these tenants have moved in. There is always inherent turnover; but why place people in a property where you will certainly have vacancy costs, turn costs a year later for all the units in the building? For the wholesaler, it doesn't affect them...they got their placement fee. If the wholesaler knows this scenario and isn't saying anything, they're obviously not looking out for the investor's best interest.
Worse yet, out of state investors who failed to do much of this due diligence, find out there's big issues they now have to tackle costing a chunk of change they never anticipated needing to spend money on.
D & K Property Management Services
Karen Bostwick
(440) 590-5925
KarenMBostwick@yahoo.com
https://dkpropertymgmtsvcs.blogspot.com/
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