There is a lot that goes into buying a great investment property. It takes a combination of due diligence and hard work in several different areas. If you let your guard down in any area along the way you open yourself up to trouble. One mistake with an investment property can end up costing you thousands of dollars. Regardless if you are looking for your first property or your next big one the steps to buying the right property are the same. Here is the five step process you should use to acquire your next property.
- Write down property goals. Good real estate investment deals come in all shapes, sizes and locations. If you are not careful you can easily fall into the trap of chasing every deal that comes your way. When you start chasing deals you slowly lose focus of what it is that you really want. The first step in getting good deals is to know what you are looking for. List all the items you want in your ideal investment property. Be sure to include specifics on location, price range, size, room count and condition. Use this as a guide to help in your property search. You probably won’t be able to find the perfect property but a list will help you get as close as possible. If you had to choose one item that is most important it should be location. Not only does location help with the resale value but the more you look at properties in a specific area the better you know it. This helps make your buying decisions easier the next time a new deal hits the market.
- See every property. Technology has reinvented the way the real estate business is done. You can get most of the information needed to buy online. Between video tours and high quality photography you can almost feel like you are at the property while being 1000 miles away. It is important not to use technology as a crutch. To get the best deals you still need to lay eyes on the property. There is valuable information that can be gained simply by seeing the neighborhood and walking the property. A deal that looks look on paper can turn out to be a real dud. Conversely a deal that you would otherwise pass on can be a home run once you see it. The more properties you look at the easier the due diligence process becomes. Let your eyes determine if the deal is for you and not what you see online.
- Make the right offer. Once you have determined that the property is for you the next step is to make an offer. Where and how your offer is made goes a long way in whether or not it is accepted. The most obvious starting point is the price. You need to know which deals you can lowball and which you need to come in strong. On deals with heavy competition a lowball offer will be quickly dismissed. Try to get an understanding on seller motivation before you submit your offer. In addition to price you also need to make sure your contract has the right language. Very few sellers are going to sift through the contract if it is heavy with contingencies. The contact should also be on the correct form and clear to understand. How you plan on financing the property is also important. If you are paying cash you can reduce your offer slightly. If you are using lender financing you should be prepared to make your offer stand out. The final piece is the closing date. No seller wants to wait months to close even if the price is higher. If you really want the property you should be prepared to act as quickly as possible.
- Inspections/title. Getting your offer accepted does not necessarily mean it is going to close. You still have a few hurdles to climb. The first task you need to complete is to have all the necessary inspections completed. Your inspector is part of your team. They are compensated the same whether they think the property is flawless or they find significant issues. It is important to work with an inspector that you trust and can turn the report over quickly. Sometimes the best thing you can do is walk away from a deal. If there are issues that are too much to overcome you need to pass and wait for the next one. There are always other deals out there. The other major roadblock at this point is obtaining clean title. You should never assume that the title is cleared. Don’t wait until a week before the closing to get this ordered. If there are liens or other mortgages they need to be removed or paid off before you can close. Tracking down a past lien could take weeks that will delay the closing.
- Closing. There are issues that come up at closing all the time. The key is to take a proactive approach and be ready for whatever comes your way. There are times when the house may not be in the move in condition or there are fees that were undisclosed. It is important to keep the big picture in mind. If you are getting a good deal don’t let a few hundred dollars stand in the way of a much bigger prize. Nobody likes to be on the wrong side of a deal but many things are not work walking away from a good deal over. By compromising just a little bit you can get the property and still save face. The goal is not to win the negotiation but to acquire the property. When issues come up at closing work with your attorney and real estate agent and always keep the big picture in mind.
In real estate you are not judged on the quality of your deals and not the quantity. Following these five steps will put you well on your way to closing your next big deal.