7 Signs A Real Estate Investment Might Be a Money Pit

real estate investment money pit

Investing in property is no easy task. While some investments may prove to be incredibly fruitful, others unfortunately could turn into a money pit. Buyer beware – even if a property has all the indicators of a fantastic investment, it could be a money pit in disguise, costing you thousands in maintenance costs. So, it’s crucial to understand how to avoid these types of properties. Real estate money pits aren’t just a financial loss; they will take up quite a bit of your time as these properties will constantly require repairs and improvements.

To determine if your next investment is a lemon, it’s absolutely critical to inspect everything with a professional eye. Inspection is key, as it allows you to find any potential concerns that might be a significant drain on your wallet.

Whether you’re looking to start investing in property or want to make sure that you’re doing it right, here are a few things to look out for when scoping out your next investment.

7 dangers to avoid in a real estate investment:

  • Signs of an unstable foundation
  • The appearance of cracks and leaks
  • Signs of water damage, rot and mould in the walls
  • Strange odours
  • Shoddy electrical or repair work
  • Sloping floors and warping wood or drywall
  • General maintenance of the house and property

Unstable Foundations

Upon inspecting the property (yourself and with a professional), take note of the foundation. Every house should be built on a solid foundation and properly levelled. The property should stand up straight, and it should continue to do so for the entirety of its life; no property should ever be leaning to any side (that’s not character, that’s a problem!). This is a sign of poor drainage where water may have pooled under the house, eroding the soil beneath your foundation.

This can cause a slew of problems for your property, which may undoubtedly cost a hefty sum to fix. So, when you’re on the lookout for a new investment property, thoroughly inspect its foundation as well as the flooring inside the house. Any uneven flooring could be a sign of a foundation-related problem. Foundation issues are major red flags because they are not easy to fix. If you notice foundational “red flags,” get a professional opinion.

Cracks and Leaks

As you enter the house, be on alert for any cracks in the floor, ceiling or walls. Cracks are never a good sign of anything – especially when it comes to a potential investment. Unless it’s a surface-level crack in the paint or tile, cracks are typically caused by increased physical stress that is placed on the structure, as well as the temperature fluctuations that the structure is exposed to.

While cracks are (for the most part) relatively easy to maintain and fix, if left unattended they can cause serious damage to your property, leading to far worse issues, such as leaks from a heavy downpour of rain or a leaky pipe. This can result in rot, mould and warping… and those are not as easy to fix.

Rot and Mould

Be on the lookout for rot and mould. Use your eyes and your nose! This is usually easy to spot by looking for dark spots, rotting wood or drywall, or the damp smell when you enter a room. Rot, mould and mildew are among the most severe problems that people associate with their homes. They can destroy a house, rotting away drywall in the ceilings, the floorboards, and even the walls. Rot and mould aren’t simply cleaned; in most cases, these need to be removed and replaced, and as you probably know, this won’t be cheap.

Mildew, rot, and mould occur when there is excessive moisture or humidity within a space, often caused by a leak within the walls. The problem is that it may be quite hard to spot before it’s too late, if it’s hidden behind your walls. That’s why it’s recommended to carefully (and professionally) inspect of the entire house, including the attic and, if possible, inside the walls.

Strange Odours

While strange odours inside a home may typically be associated with rot within the walls or ceilings, it might be a sign of something else entirely. This isn’t to say that any rotten smell should be disregarded – this should obviously be addressed. Any strange or unnatural odour is almost always a sign of something amiss.

Any burning smell should be dealt with immediately as it can result in a fire from the property’s heating system or dryer vent. Upon smelling any unusual odours, finding the source should be prioritized. The source of any and all odours should be determined as soon as possible to take the necessary actions to address it.

Shoddy Electrical Work

A poorly wired or maintained electrical system is a huge red flag of a money pit due to the amount of problems it can cause, as well as the associated costs to fix any damages and to wire it properly. Depending on the age of the property, there could be numerous types of wiring running behind the walls.

You should also try testing the property’s electrical capabilities. By simultaneously plugging in and powering on all necessary devices, appliances and equipment, you should be able to determine whether the system is able to meet your needs. If this test results in any appliances being unable to function properly, an insufficient amount of power is most likely the direct cause. It’s recommended that you consult with a professional inspector or electrician before signing on the dotted line.

Warped Wood

Finding warped wood or drywall within your home is another potentially expensive consideration – especially if you find a warped hardwood finish in the basement. This is a sign of a leak or a flood. However, before warped wood is replaced, the origin of what caused the warping needs to be fixed – it could point to further issues within the home.

Maintenance 

A money pit isn’t simply defined by the obvious external problems associated with the property. Since these types of properties are defined as a frequent, huge drain on your resources, a money pit can refer to a property with no surface problems. The house can be pristine; however, the financial losses are associated with the money and effort it takes to keep it pristine.

For example, a large sprawling property may seem ideal to property investors. However, some overlook the costs needed to maintain that property. Larger rooms require more time to clean and upkeep, bigger lawns need heavy duty equipment to efficiently mow and more attention to keep the grass healthy. In this case, bigger does not always mean better if you’re looking for an investment with selling potential. If a larger property seems like it will suit your lifestyle, you need to consider the amount of time and money needed to maintain a property like this.

These are just a few of the many things to look out for when considering your next real estate investment. Whether you are an experienced investor or just starting to invest, being alert of any of these signs when thoroughly inspecting a property can save you from making a bad investment.

Sources:

https://benknopp.com/avoid-money-pit-lookout-6-warning-signs-mean-expensive-repairs/

https://www.investopedia.com/articles/mortgages-real-estate/12/dream-house-money-pit.asp

https://www.hometips.com/articles/avoid-buying-money-pit.html