Rental Property Red Flags: A Field Guide for Investors

I'm Bud Evans, and over the years I've learned the fastest way to make money in rental properties isn't always finding winners—it's avoiding losers. This field guide distills the red flags I watch for on every deal, why they matter, and how to verify them before you wire a dollar to title. Use it as a practical checklist on your next walkthrough and underwrite every risk into your price and terms.

How to use this guide

This is an operator's checklist, not legal or tax advice. Read each section, perform the verification steps I suggest, and apply the decision rule. If the repair, remediation, or operational unknown wipes out your cash cushion or your underwriting floor, renegotiate hard or walk away.

1. Foundation and Water: The Silent Profit Killers

Water and foundation issues are deal killers because they hide and recur. If a house has chronic water intrusion, it's usually telling you to run. Here's what to watch for:

• Stairstep cracks in block walls; horizontal cracks in poured foundations.

• Doors that rub, floors that bowl or crown.

• Patches of epoxy without drainage improvements.

• Basement/crawlspace smells—moisture often has a scent.

• Fluorescent white chalky residue on masonry (efflorescence).

How to verify

• Bring a strong flashlight and a moisture meter.

• Check grading: soil should slope away ~6 inches over the first 10 feet.

• Look for functioning gutters and full-length downspouts discharging 6–10 feet from the foundation.

• Ask for structural reports; if none, hire an inspector or structural engineer.

Decision rule: If foundation repair plus drainage and interior finishes wipe out your cash cushion or push your DSCR below your threshold (mine is 1.3), renegotiate or walk.

2. Roof, Siding & Exterior Openings: Where Money Evaporates

The shell of the building protects everything inside. When the exterior fails, you’re buying a renovation, not a rental.

• Curled shingles, heavy granular loss, soft sheathing at eaves, patched multiple layers.

• Flat roof ponding, cracked seams.

• Rot at bottom courses, failed caulking, missing kick flashing, soft trim.

• Windows with failed seals (fogged glass) or windows that won’t open.

How to verify

• Use binoculars, a drone, or detailed photos to inspect the roof.

• Inspect soffits for softness and rot.

• Spray suspect windows and thresholds with a hose to test for interior weeping.

• Check permit history for re-roofs and exterior work.

Decision rule: If the exterior shell is failing, price it as a renovation. If the seller won't reflect that in price or credits, walk.

3. MEPs: Electrical, Plumbing & HVAC Red Flags

Systems equal safety and operating cost. Miss these and you inherit emergency repairs and insurance nightmares.

• Electrical: knob-and-tube, aluminum branch circuits, double-tapped breakers, missing GFCIs near wet spots, exposed underground outlets.

• Plumbing: old galvanized supply lines (brown water), cast-iron stacks with scaling/cracks, mystery repairs with shark-bite fittings or duct tape, wet ceilings above bathrooms.

• HVAC: short-cycling furnaces, cracked heat exchangers, mismatched condensers/air handlers, ancient boilers, lack of recent service, or space heaters used as primary heat.

How to verify

• Carry a three-light outlet tester and check random outlets.

• Pop the electrical panel—have a licensed pro review if allowed.

• Run every faucet and flush all toilets at once to test pressure and drainage.

• If there’s a basement cleanout, pull the cap and sniff—rotten egg smell suggests vent or trap failure.

• Photograph HVAC labels, model and serial numbers; check ages and service stickers; use an IR thermometer to measure vent temperature splits.

Decision rule: Mandatory life-safety fixes go into your day-zero capex. If the seller won’t price for those risks, don’t fund their deferred maintenance.

4. Environmental & Health Hazards: Invisible Deal Breakers

These risks can become six-figure liabilities if ignored.

• Lead-based paint in pre‑1978 homes.

• Friable asbestos in pipe wrap, floor tiles, or insulation.

• Mold hidden behind finishes or in wall cavities.

• Abandoned underground oil tanks.

• Hidden fire damage masked by new drywall or smoke shadows in the attic.

How to verify

• Assume lead exists in pre‑1978 homes and follow local certification rules.

• Ask about oil-heat history and use a tank-sweep company to scan for underground tanks.

• Use a moisture meter for suspect drywall patterns and check attic sheathing for smoke shadows.

Decision rule: If remediation risk is unclear and the seller can’t document resolution, underwrite the worst-case scenario or walk.

5. Title, Zoning & Unpermitted Work: Legal Landmines

Legal issues can convert income-producing assets into expensive liabilities overnight.

• Finished basements or converted attics without permits.

• Illegal extra units or in-law suites that will be flagged by inspectors.

• Easements cutting through driveways, encroachments, shared wells/septic, and missing final permits.

• Municipal rental licensing or occupancy limits you didn't expect.

How to verify

• Pull a municipal file search and compare unit count to tax records.

• Ask for Certificates of Occupancy (COs), final permits, and prior rental licenses.

• Get a survey when boundaries are tight or easements exist.

Decision rule: If income depends on an illegal configuration, you don’t have a durable NOI. Fix it on paper or walk.

6. Location & Surroundings: The Context You Can’t Renovate

You can renovate floors and kitchens, but you can't fix a bad street or a neighborhood in decline.

• Chronic trash dumping and boarded-up neighbors.

• Heavy daily police activity or a third-shift crowd that changes the nighttime character.

• Weak street lighting and poor walkability.

• Major employer exodus, school consolidations, or infrastructure projects degrading access.

• Flood zones, wetlands, or frequent sewer backups.

How to verify

• Visit the property three times: weekday morning, evening rush, and late night.

• Talk to neighbors and delivery drivers.

• Check FEMA flood maps and your insurance broker’s claim trends.

Decision rule: If you wouldn't let a family member live there at night, don't buy it. You’ll be buying headaches you can’t flip through renovation.

7. Taxes, Insurance & Hidden Fixed Costs

Operating cost assumptions that ignore reassessment, insurance adjustments, and HOA/projected assessments will blow up your cash flow.

• Low tax bills that ignore reassessment after sale.

• Cheap insurance quotes that jump after the carrier sees property age, wiring, or claims history.

• Underfunded HOAs or pending special assessments.

• Municipal rental inspections and recurring licensing costs.

How to verify

• Ask the assessor about reassessment post-sale.

• Get real insurance quotes from brokers based on property specifics.

• Review HOA budgets, minutes, and reserve studies.

• Identify all recurring municipal fees and add them to underwriting.

Decision rule: Underwrite to your taxes and insurance, not the seller’s numbers. Rehab can increase assessed value, so expect tax jumps.

8. Financial Fiction: Numbers That Don’t Survive Daylight

Sellers love round, optimistic numbers. Your job is to expose the fiction and rebuild the real operating picture.

• Advertised rents that don’t match leases or rent rolls.

• Claims that tenants pay all utilities when bills show owner-paid services.

• Expenses listed as 20% without supporting maintenance logs, management fees, or reserves.

• Zero vacancy claims or missing trailing‑12 financials.

How to verify

• Demand leases, rent rolls, deposits, payment ledgers, utility bills, and 12–24 months of income/expense statements and bank records.

• Rebuild a trailing‑12 (T12) yourself and normalize for realistic vacancy, maintenance, reserves, and management fees.

Decision rule: If the story and the statements don’t match, price the deal off the paper, not the pitch. If the seller won’t provide documents, walk.

9. Tenants & Operations: Inherit the Truth, Not the Brochure

Tenants and property operations directly determine your day‑to‑day headaches and cash flow.

• Month-to-month tenants with chronic late payments.

• Tenants who pay cash only or refuse lawful access for inspections.

• Handshake deals with family friends and missing legal protections.

• Outstanding code violations or rent-control rules that cap increases.

How to verify

• Interview the property manager and knock on doors with permission.

• Confirm security deposit handling and where deposits are held.

• Check court records for active or recent eviction filings.

• Understand local rent regulations, caps, notice timelines, and allowable fees.

Decision rule: Buy what exists today, not a fantasy of what it could be if everyone cooperates.

10. Utilities & Building Systems: The Cash Bleeders

How utilities are metered and allocated can make or break margins—especially in multifamily properties.

• Master-metered electric or heat with electric baseboards or oil heat will destroy margins.

• Shared water without individual shut-offs breeds leaks and disputes.

• Unknown septic pump dates, clay sewer laterals, or repeated slow drainage indicate large underground bills ahead.

How to verify

• Confirm separate meters. If master-metered, price submetering or determine who bears cost by lease law.

• Camera-scope sewer laterals rather than guessing—it's cheap compared to excavation.

• Pump and inspect septic systems and require paperwork.

Decision rule: If you can’t fairly meter or allocate costs, you will eat them. Factor that into your price or skip the deal.

11. Management & Vendor Flags: Operational Red Flags

Opaque operations hide deferred maintenance and cash leakage.

• Property managers who resist questions, can’t produce SOPs, or won’t share vendor invoices.

• Vendors who can’t respond to emergencies or do not provide photo proof of completed work.

• No documented delinquency flow, maintenance SLAs, or reporting cadence.

How to verify

• Ask managers for SOPs, delinquency procedures, maintenance SLAs, and reporting schedules.

• Require vendors to provide before-and-after photos for each ticket and track first-time fix rates.

• Compare answers from seller, property manager, and contractor—the contradictions point you to the truth.

Decision rule: If ops are opaque, they’re broken. Don’t buy the mystery—buy the math.

12. Negotiation Clues: How Sellers Reveal Risk

Sellers reveal themselves in behavior: rushing you, refusing inspections, or offering aggressive deadlines without data are signs to slow down.

• Refusal to allow inspection or produce documents.

• Aggressive deadlines with no data room or as-is terms paired with rosy financials.

• Leases written on napkins or competitors of convenience.

How to verify

• Time-box your due diligence with a clear document checklist. If the materials don’t arrive, pause or walk.

• Counter with three options: lower price as-is, same price with seller credits/repairs, or seller financing with protective terms.

Decision rule: Pressure is a tactic. Clarity is your defense.

13. The Simple Walkthrough: What I Do Every Time

A focused walkthrough separates what’s important from the noise. My routine:

1. Drive-by (5 minutes): roof lines, grading, neighborhood pride, nighttime lighting, and parking realities.

2. Curb-to-crawl (30–45 minutes): inspect the exterior shell, foundation lines, gutters/downspouts, basement/crawlspace moisture, run every faucet and flush toilets, heat/AC test, attic check, windows/doors, smoke and CO alarms.

3. Document pockets: ask for same-day leases, rent rolls, ledgers, T12s, utility bills, licenses, permits, violations, insurance claims, HOA docs.

4. Triad check: ask seller, property manager, and contractor the same questions—divergent answers highlight issues.

What to do when you find a red flag

If a red flag shows up, take a disciplined approach:

• Quantify it: get bids, not vibes. Document actual cost estimates for repairs or remediation.

• Underwrite with real numbers: taxes, insurance, capex, vacancy, and management.

• Reframe your offer: change price, terms, or both. Ask for seller credits, repairs, or escrowed funds.

• Decide fast: buy, restructure, or walk. No maybe—use math, not hope.

Closing thoughts

Passing on a bad deal is a profit. Discipline saves your cash flow and your sanity. When your discipline is sharper than the property’s problems, you will buy fewer headaches and keep more of your cash.

If you want a simple takeaway: print this checklist, take it on every walkthrough, compare your notes to the seller’s story, get documentation, and underwrite the worst reasonable case. That’s how you protect your returns and grow a durable portfolio.

Aim high, execute fast. — Bud Evans

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