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One of the most important lessons you can learn in real estate is when you should turn away from a bad deal. While there is always a risk associated with investing, sometimes the juice is not worth the squeeze, and you may be better off pursuing a different property altogether.
Even if you enter a deal feeling confident that you are making a good choice, sometimes you find out that first impressions are not everything. Not every property is suited for every investor and the sooner you can identify that a property is a poor fit for you the better.
So, in order to help you determine when a deal is not going to work out, here are a few reasons why you may be better off walking away.
However, sometimes if you are too far along in the process, there can be penalties to walking away from both the seller and mortgage lender. So, before you try walking away from a deal, sit down and talk to your realtor and mortgage broker. If you want to learn more about the potential troubles associated with walking away, click the link below for a free strategy call today.
There is No Shame in Walking Away
When it comes to any big purchase, it is normal to feel awkward about suddenly backing out and walking away. After all, if you went into a deal confident and prepared thinking you were stumbling on a hidden gold mine or a diamond in the rough, it can be difficult to swallow your pride and admit you were wrong.
However, you should not feel ashamed. In fact, you should be proud whenever you decide to give up on a failing deal. Frequently, even after finding out it is no longer feasible, there are investors who will waste their time and money trying to save a failing deal. Sometimes there are things that can be done to make it work, but if it seems unlikely, you may be better off saving your time.
You Cannot Afford the Deal (Or the Lender Won’t Support It)
One of the biggest reasons that deals fall through is money. Whether the seller is asking for more money than you can afford to pay for a property, or you cannot find a lender who is willing to finance the deal for you, sometimes certain properties are simply unaffordable to pursue. If the deal is not affordable, there is no shame in walking away.
While it may be possible to liquidate some of your assets or draw on existing equity to save the deal, you need to assess if doing so is a wise investment in the long term. Or perhaps traditional mortgage lenders are not doing the trick, so you want to pursue private or alternative methods of financing the purchase. These options may be able to save the deal for the time being, but they also frequently come with higher interest rates that make the property even less affordable over the lifetime of your loan.
The Property is Not Profitable
When you are buying a rental property, take the time to conduct a cash flow assessment. What amenities does the property offer? How much are comparable properties currently going for on the market? How much is the property going to cost in monthly expenses? After you have found answers for each of these questions, you can get a rough estimate of how much cash flow a property is going to make. If that number is too low, it might be time to start looking at different properties.
Sometimes, investors will buy properties with limited cash flow due to their high potential for appreciation, but even then, it may be safer to avoid relying solely on appreciation in case the market takes an unexpected hit, and the property value ends up declining.
If you need a cash flowing property and the deal you are looking at won’t give you one, it is probably time to start walking away.
Discover How To Buy Unlimited Rental Properties With This Step By Step Guide
There are Obvious Problems with the Property
Sometimes, even if a property seems perfect on the listing, you can find serious problems the moment you go to view it that will result in you walking away. Whether the house has extensive water damage, glaring structural issues or has outdated systems, you have to consider the cost of repairing and updating these issues.
While it may be possible to get the property into good condition with enough time and money, it is not always worth it. If the property is already valued close to comparable properties in the region even with its issues, it is unlikely that, even after spending thousands of dollars to repair it, it will appreciate enough to make it worth the cost. Plus, if the time it would take to complete the work is too long, you run the risk of losing even more money as you pay for the property expenses without receiving any income in return – so you are probably better off walking away.
The Neighbourhood is Not Ideal
Sometimes, the problems that a property faces do not come from the property itself. It does not matter if the home is in great condition if it is located in a bad neighbourhood.
Regions known for high crime rates, loud neighbours and environmental contamination (such as oil and waste leaking into the soil from local gas stations or factories), are frequently less desirable and harder to fill once you buy them. So, even if the property is excellent, be wary of the neighbourhood before making the purchase. If you suspect the area will deter tenants and the property will sit empty, take the hint and start walking away.
Get All the Facts Before You Sign a Contract
One of the worst mistakes you can make in real estate is signing an agreement to purchase a property before you have all the facts. If you sign a contract saying you are going to buy a home and later find out new information that makes you want to back out, you can find yourself in a difficult spot. Backing out can occasionally incur you unexpected fees or the seller may even threaten to take legal action against you for going back on your agreement.
If you get all the facts laid out before you sign anything, you can be sure you will not need to start walking away from the deal and avoid the hassle of trying to get out of your contracted agreement.
If you are ready to go out and buy your next investment property, get started the right way with a pre-approval from an experienced lender. One of our agents here at LendCity will gladly get you started and matched up with a lender who can offer you the best available rate for your next purchase. So, visit us online at LendCity.ca or give us a call at 519-960-0370 to take the next step in your investment journey. Alternatively, click the link below for a free strategy call today.