Many new investors are itching to start closing real estate deals as soon as they can. After watching property investment television shows, they get a romanticised idea of the business and think that everything will be plain sailing. Nonetheless, if you are unfamiliar with the right procedures to use, you will end up banging your head against a brick wall and struggle to make any progress. Irrespective of what kind of real estate investing you are interested in, the methods for buying real estate are essentially identical. It is vital to follow these methods and refrain from trying to make a quick buck. Even a single miscalculation or oversight can render all your hard work useless. Whether you are flipping and rehabbing properties for the first time, or just need to refresh your memory, here are the fundamentals of real estate transactions.
Understanding What Motivates Sellers
Frequently, the price homeowners think their properties should sell for will differ considerably to what you believe they are worth. However, only the homeowner’s opinion is really relevant, when it comes to selling real estate. You can try to make a case for a lower price, based on figures you have researched. However, if the homeowner isn’t interested in your reasoning, they are not obliged to sell. Typically, the most lucrative property deals are completed with sellers who are motivated. Such sellers are keen to sell, due to a pending divorce, foreclosure, short sale, change of job or death in their family. When you assess the house, you should consider the seller’s motivation. If they do not wish to sell immediately, there’s not much you can do or say that will convince them otherwise. Of course, there’s no harm in following up with them occasionally, however it is unwise to devote too much effort into getting them to reconsider. They will get back to you when it is in their best interests to do so. Therefore, you should not be too preoccupied with, or frustrated at, their lack of enthusiasm. Unless the motivation is there, you should leave things be and look for another deal.
Learning Information About the Property
Your decision to buy should be based on cold, hard facts and figures. You might be really taken with a property on an emotional level, however if the figures do not work out in your favor, you have to move on. The initial stage of all deal assessments is the property itself. You have to evaluate the present conditions, along with what upgrades are required to give you the best return. Certain upgrades might be aesthetic, whereas others could be more involved. You should estimate the costs of any upgrades you intend to make. If you lack the expertise to to do this, you should speak to a contractor who can give you a real quote. Bear in mind that the current listing price of the property is not such an important consideration initially. This is due to the fact that it is usually just a guide, rather than a definite figure. Homeowners are free to list their properties for whatever price they want, but in the end the market will decide the price that they actually get. In any event, you should avoid making any further attempt to buy a property, until you have assessed every aspect of it.
Calculating the Amount to Offer
The offer you make should depend on a few different things: market demand, comparable sales/listings and seller motivation. Always be mindful of who your competitors are and the level of demand. With properties that are not in high demand, you should avoid shooting yourself in the foot and making a high bid. Raising your offer is straightforward, however it is far harder to lower it. With in demand properties, the offer you make should be near to the listing price. Always calculate your own figures and determine a price that makes sense to you. Remember that you should allow a sufficient margin for profit. Submit your offer, then – if it is declined – cross that property off your list and look elsewhere.
Considering the Implications of Financing
The way you go about financing real estate usually has a big influence on your offer. Needless to say, smooth transactions are always the most desirable. If you can access hard money funds or capital, you can make a lower offer, with the benefit of closing quickly without needing approval from a lender. In contrast, if you work with a lender, you will have to prepare all the loan items so you can proceed after the offer is submitted. Most of the time, you will have no more than forty-five days to get approval for your offer and clearance to close. If your financing is not ready, you will not be able to submit an offer. If you attempt to do this, the seller will decline it.
Mastering the Closing Process
Once your offer is accepted, the work really begins. Irrespective of whether you are using lender financing or your own capital, you will have to get the property inspected straightaway. Do not forgo this practice just to snag a deal. Even experienced contractors have been known to overlook certain problems with the structure or foundation of properties. If you forgo a property inspection, you are leaving yourself open to huge liabilities. If you need to use a lender, you have to present all your loan paperwork promptly. The sooner you give your lender the relevant business licenses, bank statements, tax returns and any other items they require, the sooner they can set the ball rolling. It is vital that you hire a lawyer who specialises in property, and who understands how to negotiate with other lenders and lawyers. There’s nothing worse than losing a deal, just because your lawyer was incompetent.
Make sure you follow every step of the deal until it is closed, and be available as necessary. There are inevitably going to be unforeseen obstacles in property investing, however the above advice should set you on the path to success.