The Numbers Don’t Add Up. You’re in this game because you want to make money. If the numbers do not add up, and the seller won’t drop the price or give you better terms, move on.
Missing Numbers. If the seller can’t provide you with the year-to-date profit and loss statements, plus the actual numbers from the previous two years, move on to another deal.
Made-up Numbers. Pro forma numbers are pure guesswork. They may be educated guesswork, but they are still a projection. Lenders won’t give these made-up numbers any weight and neither should you. This is where your experience plays a big role. After a while, you will quickly be able to figure out “who is blowing smoke” or if the numbers make sense.
Troubled Property. A property may look good on paper–the numbers are real and they add up. But a site visit paints a different picture. Perhaps it needs major repairs because the seller has been deferring the maintenance, hoping to pass the headache on to the buyer. Don’t let it be you.
Wrong Area. Don’t spend your money trying to reverse a trend. If the neighborhood is in decline, the property carries that stigma. Tenants will be moving on, and so should you.
Months on the Market. Good properties go fast. Bad properties linger in the listings for month after month. With detective work, you can figure out why it’s a dud. And that’s a viable learning experience. But your time will be better spent going after good deals.
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