5 Red Flags to Look For Before Investing in a Multi-Family Property
A multi-family property can be a great addition to your real estate investment portfolio, but it’s important to look for any red flags before making a commitment. From the obvious things like pests and water damage to information that needs a bit more research, taking the time to examine the property can help you make an informed decision.
Low Current Interest in the Property
One of the first things investors should look for is the number of inquiries the property has been receiving. If the number is very low, it could indicate that something wrong with the property is turning away potential buyers.
Another thing to look for is how quickly current tenants are vacating the property. If tenants leave quickly and in large numbers, that could indicate serious problems. Don’t forget to look at the reviews of the property – these can be very valuable in determining whether investing is a good idea.
Investors can also look at the rental rates the property is charging. If the rates are significantly lower than other properties in the area, it could be a sign that the property isn’t well-maintained or in a desirable location. If the rates are higher than other properties, it could be a sign that the property is overvalued.
Signs of Water Damage
The damage caused by water can quickly become expensive and difficult to repair, so look carefully before investing in a property. Signs of water damage include:
- Stained ceilings, walls, and floors
- Peeling paint or wallpaper
- Discolored or warped tiles
- Cracks or bulges in the walls
- Musty odors
- Unexpectedly high humidity
- Evidence of mold growth
- Rotting wood
These should be taken seriously, as they can indicate a much larger underlying issue. It’s important to thoroughly investigate any potential signs of water damage—or even indications that it could be imminent, as a widespread issue could very well fall under the maintenance the property owner is responsible for, as opposed to tenants.
A Busy Sales History
A review of the sales history of a property can tell potential investors a lot. If there have been multiple sales in a short time, this could be a sign of instability or a lack of investor confidence in the property. It could also be a sign of a problem with the building or the neighborhood that could cause difficulty in maintaining or increasing the value of the property.
In addition to looking at how often the property was sold, try to find out why it was sold, if any changes were made, and how the property has been managed. Investors might be able to find out some of this by speaking with any previous buyers or sellers. These conversations can provide additional insight into the area and the building.
Signs of Pests
Pests are often a sign of a poorly maintained property. Look for signs of common household pests, such as rats, mice, roaches, or bed bugs. Signs of an infestation may include the presence of droppings, gnaw marks, and nests. Be sure to ask the current owner about any previous pest issues and take note of anything suspicious. Investors may want to call in a pest control professional to inspect the property and advise on any necessary treatments.
It’s important to also consider the risk of future pest problems. Look for any potential entry points that pests may use to enter the property, such as cracks in the walls and holes in the foundation. Additionally, check the surrounding area for any potential sources of food or shelter that may attract unwanted critters. Be sure to take preventive measures to reduce the risk of future infestations, as tenants might not be happy about being asked to help with pest control.
Work Done Without Permits
Another potential red flag for investors is work done on the property without the appropriate permits. This can be a major issue and should be investigated thoroughly before committing to the purchase of a multi-family property. A lack of permits can indicate that:
- The work was not completed to code: This can be extremely dangerous and costly, as it may require significant repairs or upgrades to bring it up to code.
- The owner is trying to hide something: This could mean hidden water damage or other potential issues that can be costly to repair or replace.
Investors should make sure to check with the local government to see if the property has the required permits for any renovations that have been done. If not, they should determine why the permits were not obtained and if the work was done correctly. In some cases, the investor may need to hire an inspector to check the work.
Don’t Ignore Red Flags When Investing
Investing in a multi-family property can be a great financial investment, but it’s not without risk. To maximize your chances of success, keep an eye out for warning signs such as a busy sales history and unpermitted work. Doing research and having an experienced real estate professional inspect the property can help ensure that the property is a good investment.