The myriad variables that influence real estate value can make real estate investments a tricky business. There is no guaranteed calculation that ensures profits every time, so it’s important to be able to spot the red flags that indicate it’s time to walk away from a deal that may be too good to be true.

1. Income potential is not immediate. When choosing a property to invest in, it’s better to find one that will produce a steady stream of income than to invest in a property that promises a large payout, but only at an indefinite future date.
2. The property will require lots of cash upfront. If a property is going to cost a lot upfront (if there are multiple buyers competing for it) or require a large influx of cash to renovate it and make it appealing to tenants, then it may not be a great choice as an investment.
3. There is a lack of income documentation. If the seller is unable to provide hard statistics (not estimates) for rental rates, vacancies, or year-to-year profits of the property, then it’s likely that it is not a hugely profitable rental property and that you won’t realize much, if any, return on your investment.
4. The property is in a bad neighborhood. One trick of real estate investment is to find properties in areas that are up-and-coming where property values are going to increase. There is very little to be gained from investing in properties in neighborhoods that have a bad reputation or where overall property values are on the decline. Even if the property itself is in good condition or offered at a significant discount, it is unlikely that you will realize much of a profit on it.
5. It’s a development deal. Unless you have experience with development deals, or are working with an experienced partner or team, these deals can often be too high risk to make good investment deals.
6. The property is in another country. Unless you have experience and knowledge of another country’s legal system and property laws, investing in international real estate can come with much higher risk and greater complexities. Currency fluctuations can also impact potential profits.

Real estate investments can be a great way to diversify your investment portfolio, but it’s important to weigh the risk against the potential payout and to only invest in those properties that are likely to give you a return on your investment.

If you need funding your real estate investment purchases, hard money can help. Contact Montegra at 303-377-4181 for information about our hard money lending programs.