Buying Rental Property – Avoid Seller’s Tricks
Be careful when buying rental property. We stayed at a motel for a week one winter. The bill showed twice what it should have, but since I already paid the correct amount in cash, I thought nothing of it. When we noticed that the lobby and swimming pool were unheated, we thought it was frugality. Only a year later, when I read a news story about a new owner struggling to make the motel work, did I realize what was going on.
The owner had been planning to sell. To prepare, she was using the two most basic ways to inflate the appraised value: decrease expenses and increase reported income. By stopping repairs and quietly adding $100 in income every day, she may have shown $45,000 more net income for the year. At a .08 capitalization rate, that means the appraisal would come in $562,000 higher than it should have. Oops!
