How to Avoid Buying a Bad Investment Property

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It’s in your price range, and you think you can make it work. Sure, it needs a few repairs. But you see the bigger picture for this property as a rental property. 

Maybe it’s your first investment property, and you don’t have a lot of money to spend—but you want to get started as a landlord. Or maybe you have a few properties in your portfolio, and you found another one that seems like a steal. You’d be wrong not to buy it before someone else does! 

But is it a good idea? Unfortunately, not every investment property is worth your investment.

The Dallas rental property market can be competitive. However, you never want to buy an investment property that’s a lemon from the start. 

If it’s too good to be true, it might be. It’s critical to calculate the property’s potential ROI when deciding on an investment property. 

Here’s some insight into what makes a good rental property versus when it’s better to walk away and find another property. 

Buying Your Own Home vs. Buying a Rental Property

When you buy a home to live in, you consider different things than purchasing a property to use as a rental investment. 

Your personal home could be more of a fixer-upper than a potential rental property. Your home could have a few issues without it being a bad idea to buy it for yourself. 

Of course, you want to avoid significant problems in your personal home and any potential rental properties—like foundation issues. 

However, with your personal home, you’ll invest in it over the years. It’s a long-term project. As your lifestyle changes or your family grows, you’ll make updates to the home that add value and work for your needs. 

With an investment property, you want to put as little money as possible into making it a safe living environment and appealing to renters. While some work might be necessary to get it ready for tenants, avoid choosing a rental property that requires significant time and money to make it livable. 

A rental property doesn’t need to be a home that meets your personal expectations. Rental properties need to serve the rental market. Consider amenities that renters enjoy more so than your personal preferences when choosing a property. 

Evaluate Based on Income

Whether the home is “cute” or not is irrelevant to your success as a property investor. 

Can you make money on it? That’s your bottom line when considering a rental property. 

Do plenty of market research and evaluate your financial situation to make an informed decision. 

  • What’s the price of the house?  
  • What is the monthly rent for other rental homes in the area? 
  • What would your average monthly and annual expense be? Taxes, maintenance, insurance, etc. 
  • Does the location attract the varieties of tenants that would work well in your properties? 
  • What’s the turnover rate for other rental properties in the area?
  • Do you have the resources to get the property ready for tenants?

When considering a new rental property, think like a business owner—not a resident. 

Will you be able to keep the property occupied and see a profit? If the numbers say yes, it might be a good investment property for you. 

Consider Your Financial Goals

How much money do you want to spend to achieve your long-term investment goals?

Before you buy a property, make sure it falls in line with your plans for your rental property business. 

Being a landlord is a full-time job. Most landlords and property owners consider rental properties as passive income. To make it “passive,” your financial input and workload to manage the properties should be a minimal investment. 

Working with a property management company can help you decide the best long-term plan for your investment money. 

A professional Dallas area property manager knows the rental market. They’ll help you decide if a specific property is a good idea for your financial plan—or if you should walk away from a property. 

Property management companies will also help you set the right rent amount for your rental property. No matter how much you spend on a house to get it ready for tenants, it’s critical to set the right rent price to make the investment profitable.

Walk Away From a Bad Investment Property

Investing time and effort into researching a property doesn’t mean you can’t walk away from it. If the numbers don’t work or your property management company advises against a property, don’t buy it. 

There will be other properties that are a better fit for your portfolio. A bad investment property isn’t worth the wasted money and the risk to your long-term financial plan. 

If you don’t have a Dallas area property management company, Uptown Dallas Properties is here to help! We are property management experts in the area. 

Contact us to run a FREE Rental Property Analysis on any property you’re considering as an addition to your portfolio. We’ll also run a free analysis on any of your current properties. We are here to help you get the most out of your investment properties!