CONSIDERING HOW INVESTMENT PROPERTY OWNERSHIP COULD CHANGE YOUR LIFE?

What Investors Can Expect

So you’re considering jumping into the world of investment property! I know I caught the bug more than 17 years ago and haven't looked back.

There is much more to consider and at stake when buying and selling investment properties compared to traditional residential real estate -- which is why I’m here to coach you through every step to make sure you don’t miss any details or opportunities and you do maximize your goal-specific investment.

If this is your first time purchasing for pure investment purposes, click through the icons to learn more about what you might expect in the process.

Escrow, Inspections & Appraisals

While an offer has been accepted, there is still an official, legal real estate contract to agree upon and sign to take you to “closing.”  Now is when you show you’re serious about purchasing the property; make sure all potential repairs are known; and finish securing financing, insurance and any other approvals. 

To streamline the process, and make your life easier:

  • Stick to the timeline. Once your offer is accepted, you and the seller have strict deadlines to mark every stage in the process of closing the real estate contract. Meeting the requirements on time ensures smoother negotiations so that each party involved is not in breach of their agreements. I will keep you constantly updated throughout the process so you will always be prepared for the next step.

  • Keep written records of everything. As part of an agent’s fiduciary duties they should provide you copies of all verbal agreements, including counter-offers and addendums and to convert them into written agreements to be signed by both parties. I will assist you in drafting all the paperwork for your purchase and make sure that you have copies of everything.   You will want to have all final paperwork handy when it comes to tax time, because unlike with traditional residential closing costs, much of these costs are tax deductions with investment properties!

The Initial Purchase Agreement and Deposit

After your offer is accepted, you can expect most purchase agreements between a potential buyer and the property’s seller to include a good faith deposit to demonstrate your commitment to following through. If the property purchase is successful, the deposit is applied to the buyer’s down payment. However, if the contract falls through due to the fault of the buyer, the seller  usually gets to keep the money. To protect both the buyer and the seller, an escrow account will be set up and managed by the closing agent to hold the deposit until the transaction closes. 

The Closing Agent

Either a title company or an attorney will be selected by the seller as a closing agent. The closing agent will hold the earnest deposit in escrow and will research the complete recorded history of the property to ensure that the title is free and clear of encumbrances by the date of closing and that all new encumbrances are properly added to the title. Some properties are subject to restrictions which limit various activities such as building or parking restrictions. There may be recorded easements and encroachments, which limit the rights to use your property.

Inspections

Inspections are an important part of the home/property buying process because they are meant to show you all the potential repairs, both obvious and hidden, that may not have been included on the seller’s disclosure forms.  If you requested an inspection as part of the purchase contract, you would need to have a licensed property inspector inspect the property within the time frame that was agreed upon in the effective purchase contract. You may elect to have different inspectors inspect the property who specialize in a specific area (eg. roof, hvac, structure). If you are purchasing a commercial property, then you will need to have an environmental audit done on the site for the lending institution. I can recommend several different inspectors.

Depending on the outcome of these inspections, one of two things may happen:

1. Each milestone is successfully achieved, and the contingencies will be removed, bringing you one step closer to the close, or

2. The buyer, after inspecting the property, may request a renegotiation of the terms of the contract either in the form of repairs, reduced purchase price, assistance with closing costs, or contract termination if unsatisfactory.  

Appraisal and Lending

If the agreement is conditional upon financing, then the property will be appraised by a licensed appraiser to determine the value for the lending institution, via a third party. This is done so that the lending institution can confirm their investment in your property is accurate. 

With investment properties, appraisers use recent sales of comparable properties based on a combination of square footage measurements, building costs as well as operating income to determine value. If the property is rented with significantly below market rents, this may hurt the value of the property.

It is imperative that you keep in close communication with your lender, who will let you know when additional documents are needed to approve your loan application and fund your loan. Additionally, when you are within two weeks of closing, double check with your lender to be sure the loan will go through smoothly and on time.

Association Approval

If the property is conditional upon an association approval (HOA), it is important to review the rules, regulations, and other important documents from the seller as soon as you have an effective purchase contract. Make sure that the application documents and processing fees are submitted to the appropriate person at the association by the required time. 

If you are required to meet with the association for your approval, make an appointment as soon as possible for the interview. Some associations require a certificate of approval before move-in. Your closing agent will request that the original copy of this approval letter be brought to the closing, so that it can be recorded with the deed in the county public records.  I will help you obtain these documents and create a timeline of when items are due.

Property Insurance

If you are obtaining a loan, insurance reflecting the property value will be required by your lender. Purchase price, the particular lending institution and other factors will determine the property value and related policy and pricing. To get the best pricing: 

  • Shop around – you may be able to save hundreds of dollars a year with a different provider.

  • Insure your house NOT the land under it. After a disaster, the land is still there. If you do not subtract the value of the land when deciding how much homeowner’s insurance to buy, you will pay more than you should.

  • Consider a higher deductible. A few hundred dollars increase in your deductible can make a big difference in your premium.

  • Ask your insurance agent about discounts. You may be able to get a lower premium if you pay in full, or if your home has safety features such as dead-bolt locks, smoke detectors, an alarm system, storm shutters or fire-retardant roofing materials. People over 55 years of age or long-term customers may also be offered discounts.

I will be happy to recommend experienced, knowledgeable insurance agents for every property type.

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