Real estate investment is commonly viewed as one of the steadiest forms of investment. Thi sis largely due to the fact that property values usually increase over time, however, it does not necessarily mean that investors will always be guaranteed a major profit. It is imperative that investors are aware of a few major real estate red flags to avoid making costly mistakes.
There are five important property indicators that must be considered. As the year comes to an end, there remain high levels of uncertainty surrounding the real estate market, making it all the more important to spot these property red flags.
Here is a simple breakdown of the four key warning signs of a bad investment.
If there is an oversupply of homes and vacant apartments while demand is low real estate investors should tread lightly. While some people may point out the fact that oversupply can be an opportunity to buy cheaper, it’s important to remember that a major reduction in demand can create problems as buyers will be less likely to pay premiums.
High Vacancy Rates
The second major warning sign of a bad investment is high vacancy rates. When a market has high vacancy rates there is often a surplus of rental units. This can create a very high risk for potential investors. Not only will it possibly take much longer to rent houses or units, but the market rents may actually be much lower than what was anticipated.
Units Which are Unsuitable for Families
Investors who are interested in investing long-term often consider multi-family homes to be a steady source of income. Although multi-family properties can offer their own unique challenges the investment is usually fruitful in the long run. Families tend to stay in one place much longer than single people. That said, a unit that is unsuitable for families may be a red flag for potential investors.
A family-friendly building will have at least two bedrooms, parking, and be close to transportation and schools.
Poor Economic Growth
Investing in areas that are experiencing poor economic growth will be a struggle. If a specific location is grappling with soft housing demand, high unemployment rates, and low population growth then there are a number of risk factors to understand. These economies will be impacted the hardest by changes to negative gearing and capital gains tax.
Every potential investment should be assessed on an individual basis, with these factors in mind.