The 5 Real Estate Deal Killers That Every Investor Should Watch Out For

If there’s one truth about real estate investment that always bears repeating, it’s this: nothing destroys margins faster than big ticket repairs you didn’t budget for. 

Other things like market cool downs and vacancies will kill deals gradually, but if there’s a roof replacement or full re-wiring you didn’t see coming? It only takes a split second for your numbers to fly out the window.  

It may seem obvious, but major systems catch investors (especially new ones) off guard all the time, and turn seemingly great investments into bottomless money pits. 

That’s why we’re breaking down the big ticket items that should always be on a real estate investor’s radar. Here are the five things investors miss most often, and how to spot them before they cost you thousands.

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1) Foundation

Costly to repair and terrible for resale, foundation issues will kill a deal before you even set foot in the door. 

Everything else can be renovated beautifully, but if the foundation of a flip is shifting, an inspector will flag it. Then you’re either paying to fix it, discounting the price, or watching as your buyer simply walks away. 

Even if the plan is to buy and hold as a rental, a poor foundation begets further structural problems and lots of costly maintenance. Plus, if you end up wanting/needing to bail on renting it out, you don’t want to learn the asset you’ve acquired is worth far less than you thought. 

So, what do you do?

If it’s brick, look for signs the structure is moving like stair-step cracks running through brick/mortar, “shelving” where bricks start overlapping or shifting out of plane, and uneven settling around corners, porches, or additions.  If you can’t confidently assess it, bring someone experienced or budget for an expert opinion. 

2) Electrical

In our 21st century world full of devices that need charging, electrical is one of the fastest ways to wreck a budget. Miss what’s behind the walls and 9 times out of 10 your contingency will only begin to cover the cost of fully rewiring a house. 

If you’re looking at a house that was built before the 1970s, be on the lookout for aluminum wiring. 

Aluminum is a fire hazard, and any inspector is going to flag it right away. Once buyers find out it’s there, they will most likely demand rewiring, lower their offer price, or walk away completely. For rentals, it’s also a liability issue. Even if you could rent it, you’re taking a big risk with your tenants’ safety which is, well, not good.

Fortunately, this usually isn’t hard to spot. Simply take out the electrical panel and look to see if the wiring is copper. If it’s not copper, don’t buy. 

3) Roof 

A lot of investors think they know a bad roof when they see one, but it’s not always as simple as looking for moss covered shingles and giant holes. A roof can look fine from the street and still cost you thousands.

What many investors miss is the roof-on-roof roof, and if you’re not familiar with this phenomenon, trust us, it’s a very unpleasant surprise. 

Faulty roofs that have been patched over with layers of shingles are a nightmare on multiple levels. One issue is the sheer weight that it puts on the structure; another is that the decking becomes full of holes due to being nailed through so many times. And the biggest problem? You simply don’t know what’s been bandaged over in the first place until you start tearing it all up. 

To avoid a surprise bill for replacing shingles, decking, and who knows what else, be on the lookout for signs of poor workmanship such as wavy roof lines, soft spots, and patch jobs. 

4) HVAC 

This one can vary a bit depending on location, but the age of the HVAC and cost of replacement is something you should always be factoring into your calculations. Here’s why:

Flippers can get away with older HVACs when markets are going gangbusters, but in cooler times with high interest rates, buyers aren’t going to sign on the dotted line for properties that will need a major system replaced anytime soon. If you want top dollar when you resell, a new HVAC will be expected. If you’re considering a property as a buy-and-hold investment, especially if you live in an area like the South with extremely hot summers, tenants aren’t going to pay premium rents for unreliable AC. 

A property with an older system that’s functioning might still be a deal, but don’t think your bottom line won’t be affected. Adjust your ARV expectations accordingly if the investment is a flip. If it’s a rental, you can see how long you can ride out an older system but make sure you’re putting money aside every month to replace it, because you will be replacing it.

5) Plumbing

Plumbing often gets ignored because it’s harder to see during a walkthrough. If you’re renting the property out, however, plumbing is not something to overlook. 

Old plumbing can come with leaks, clogged pipes, sewage backups, and all kinds of other unsanitary and expensive problems. Plumbing issues mean emergency calls, property damage, and unhappy residents who may withhold rent or move out altogether. Older lines, recurring clogs, roots, and failing systems can keep costing you over and over.

If you’re looking to invest in an older property, have a quick look at the pipes that are visible. If you notice cast iron instead of PVC, it’s worth looking into potential plumbing issues before saying yes to the deal. 

The “Big-Ticket First” Walkthrough Strategy

As investors ourselves, we know that in the real world you often have to move quickly if you don’t want to miss out on a great deal. However, speed can come at a major price without due diligence. 

So, how do you strike the right balance? If you’re trying to evaluate deals quickly without missing what matters, start like this:

1. Eye up the exterior: Look at the foundation and roof shape.
   
2. Check the electric: Pull out the panel and look for visible wiring clues. Check outlets if possible.
   
3. Look into roof condition: Look for signs of age, layers, waves, or stains inside the house.
   
4. Consider HVAC age/function: Think about how the market will react if you flip a house without replacing an older HVAC, or how you’ll need to budget for replacement if renting.
   
5. Look at plumbing risk: If it’s an older home, look for signs of old plumbing like cast iron pipes. Think twice before buying a house with old plumbing as a rental.
   

Bottom Line

Most of the things in a rehab budget like paint, drywall, and flooring usually aren’t catastrophic. But foundations, electric, roofs, HVAC, and plumbing can wipe out your margin, tank your resale prospects, or leave you holding a property that’s riddled with costly issues. Every time you walk a property, remember to look at these five things before you commit. 

Want to learn more about real estate investment and find discounted properties in your area? Reach out to an Evernest Investor-Friendly agent to get started.