I Bought A Property Cheap, But Can I afford to Repair it?

My property management firm (www.AshokaLion.com)  often  finds investors ill prepared to understand the risk of owning real estate.  One of the most difficult concept that owners struggle with is that properties maintenance is expensive . 

The price of a property is directly related to a few key factors: 1) Location 2) Appeal of home 3) Maintenance issues.   When you find a great deal in this market, the reasons often relate to one of these factors. For example, if your home has a lot of deferred maintenance issues; then seller may have to discount the price for these repairs. If a investor finds a “cheap” deal, there is often a reason for this.  This is why investors have to understand the risk involved with buying real estate. My remodeling team often come across many investors who fail to appreciate this risk prior to buying property. Tradesmen (electrician, plumbers, HVAC, carpenters) are not cheap. You may find vendors who will promise low prices, but you could compromise quality or reliability for false promises.   Desperate investors lose sight of that age old adage “You get what you paid for”, when they get properties with extensive repair needs. 

Trustworthy vendors and quality work are done by true professionals. This means that you may not always base these decisions on the cheapest bid. Investors should do their due dilligence with vendors. Do they have insurance? Are they licensed? Do they conduct themselves in a professional manner?  Do they seem knowledgable in the work that you are requesting?

It is great to get a property cheap, but you must be prepared. First, estimates do not always come cheap. You may get a vendor to come to provide a bid for free, but they will not come repeatedly if they are not getting the work.  Second, you should let the vendors bid for projects without knowing the other projects. Contractors may accept a bid lower then normal just to get the project. However, cost could “unexpectedly” increase or they may not provide you their full attention because the margins are too low on the project. There are many horror stories of vendors who leave a job midway to take a better paying project.

Ownership of investment property is a great thing, but owners must strive to understand the business of real estate. Nothing is free.  Proper perspective will only help investors  and future homeowner make wise decisions with their money.