Buying Real Estate looks easy on Television. But we all know that TV isn’t real. There is actually more to it. Or there is if you do it right. It is really easy to call an Agent get in the car and start looking at houses. That for me is the fun part. I’m a little different. Most Investors don’t like looking at houses. I love looking at properties.
There are some basic steps that every type of sale and purchase go through. Whether it is a house for you, or, an income property. Both involve a few important steps. 1) Understanding your personal finances. 2) Being pre-approved for your mortgage. 3) Knowing the difference between what you NEED in a property, and what you Want. 4) Knowing how to read the MLS listings. 5) Knowing a good Agent from a not so good one. 6) Being systematic in your Inspections. 7) Understanding the negotiation process. 8) Removal of the conditions. Let’s look at each of these.
If you are renting, buying a house presents a whole list of new expenses. Everything the Landlord had to fix will now come out of your pocket. You might even have to pay for your utilities if you had an all in rent. There are many MLS adds that contain words to the effect that, the mortgage payment is lower than rent. The actual mortgage payment might be lower than the rent, but they don’t talk about all the other expenses that go with owning a home. Those expenses need to be taken into account as well. If you buy a house it might be nice to still be able to afford it 6 months later.
Many people think that if they have $20,000.00, that all of it can be used for a down payment. It can be, if you have put extra money aside to cover the Closing Costs. These can be between 1-2% of the value of the property. Using the Cash Flow Planning Sheets you can quickly see how any expenses involved with the new house will affect your
The next place to go is the Mortgage Broker. I happen to like independent Brokers, (ones not tied to one Financial Institution) because they usually have a wide range of lenders, both Conventional and Unconventional. Because of this fact, they can often shop your needs and come up with the best product. Taking in your Cash Flow Plan, will allow them to judge how much, and from whom, they can get you a mortgage. A good mortgage broker will tell you if they can’t help you out, and what you have to do to qualify. The important part is to find this out BEFORE you find your dream house. There are few things as demoralizing as losing the house of your dreams, because your finances fall through. Knowing how much you can afford to spend will allow you to keep your search in the Realistic Realm.
Next comes knowing the difference between wants and needs. You have a baby on the way, three big dogs, 2 snowmobiles, and a house trailer. You NEED more than a 1 bedroom house, with a small yard. But do you really NEED a 50 acre Hobby farm? This is often the most difficult step for people to go through. However it is one of the most important. It sets the ground rules (along with finances) for your next step.
Knowing how to read the MLS listings is a key to getting a good deal on any type of property. Between the description, and the pictures you can get a very good idea if the price is negotiable, and by how much. It is also useful to see what types of houses are available in a given price range. This will help you spot a diamond in the rough, or a listing that the Agent has messed up on. Both of which are very common.
When you find a few that you are interested in it is time to call the Real Estate Agent for more in depth information. This is a critical step. Just because someone has a Real Estate Licence is no guarantee that they are a GOOD Agent. I will always recommend that you use a Good Agent when you are buying a house. The information that the Agent has access to is much more detailed than what appears on most of the general MLS listings. There are many items on this list that will help you to establish which are the most negotiable properties, and how best to buy them. Things like Days on Market, number and size of price reductions, and special terms. If you go to an Agent with your finances in order, a realistic list of possibilities, and a clear idea of what you are looking for, they are usually much more cooperative. You just made their job easier and more profitable.
Having a system when you are looking at houses is invaluable. If you look at 4 houses in a day, they have a tendency to overlap, and get mixed up. A check list and a camera are a must. Take pictures and write down comments for each property, List questions that the agent will have to get back to you on. Each property will need to have some questions answered. Don’t expect the agent to know everything off the top of their heads, there will be things they will have to find out and get back to you on. Even a good agent can’t know everything about every property.
Once you have found the property you want, it is time to make an offer. The key thing to remember is that NO BODY KNOWS WHAT A PROPERTY WILL SELL FOR!! Not even the Seller, and especially not the Agents. There are two major factors to making a strong offer. The single most important factor to know is: WHY IS THE SELLER SELLING? The second one is being sure of your finances.
Knowing the motivation of the Seller will help you set up your negotiation process, and knowing that your finances are set, allows you to deal from a position of strength. A strong offer has a minimum of conditional clauses. Every offer is unique. Having a pre determined strategy will make the negotiation process much less stressful. You have to go in knowing that there will be several offer/counter offers (also know as “sign backs”) involved before the deal is either signed, or scrapped. If they accept the first offer you make, you offered too much. The main problem with this step is that emotions get in the way. If you just HAVE TO HAVE that house, be prepared to pay too much. Walking away if your not getting what you want, is smart and often (not always) effective. This can trigger the “Fear of Loss” emotion in the Seller. Besides there is always another house out there.
The majority of deals will have some conditions that have to be removed before specific times. By using a Real Estate Agent you will find there are several standard conditions in every offer that are for the protection of both the buyer and seller. You can add other ones. Normal ones are financing, home inspection, and in the country, a good water sample. All conditions have removal dates. If a condition is not removed by the due date you either have to get an extension, or lose the deal. It is YOUR responsibility to see that the conditions are fulfilled, not the Agents. Agents will normally remind you, because now their commission is at stake. Once the conditions are removed, the deal can close.
Not bad Eh? (Eh is a Canadian term) It definitely takes longer than the usual 30 minute television show. Purchasing Real Estate however does not have to be a stress filled experience. Each step has more to it and we will explore those in detail in other posts.
Know what you NEED. Know what you can afford. Use a Good Agent, Know the Sellers motivation. Keep the offer simple with few conditions. That’s what it takes for a successful Real Estate deal. Regardless of whether it is a home for you, and income property, or a business.
Happy Hunting. Uncle E