The acquisition of a property, regardless of your predetermined intentions, is not something to be taken lightly. Prospective owners are tasked with finding a property that could potentially serve as their home for a significant period of time. Conversely, investors are confronted with an onslaught of information that will ultimately determine their profitability. One miscalculation and the whole deal could go up in smoke. With so much hanging in the balance, it is critical to mind due diligence. When faced with the monumental task of buying a home, you want to be prepared. At the risk of sounding cliché, knowledge is power. You will want to obtain as much information about the property in question before you even consider moving towards closing.
In an attempt to assist in your investing endeavors, FortuneBuilders has painstakingly compiled a list of do’s and don’ts that need to be addressed when buying a home. The following information will pertain to areas of the buying process that buyers typically forget to do, or fail to avoid:
Home Buying Do’s
Conduct the Appropriate Research
It will be impossible to find what you want until you know what you want. The first step towards buying a home will require you to figure out what it is that you are looking for out of a subject property. For investors, profitability is a priority. However, profitability is directly correlated to the features associated with the house. You will need to decide which features are important to you – keeping in mind that each house is inherently different. What is beneficial to one house in a particular neighborhood may bring down the value of a similar house somewhere else.
Literally sit down and determine what aspects and features you want your purchase to incorporate. Do you want a condo? How important is a good community? Are sizzle features necessary? The answers to these questions will provide you with a solid foundation in which you may begin your search. Understanding your own criteria for buying a home will ultimately point you in the direction you want to head.
Once you have established a full list of criteria, further delineate the items you have written down. Organize those items into two columns: one for items you want and the other for items you need. Keep in mind that honesty is the best policy. Do not trick yourself into believing you need an item that is more of a luxury than a necessity. The more truthful you are to yourself, the more conducive this list will be towards facilitating a profitable transaction. While you may want a Jacuzzi tub, you may need a two-car garage.
Once you have a better understanding of what you need in a subject property, it will be easier to begin your search. Investors are advised to use the Internet to their advantage. Take this time to study the real estate market; identify neighborhoods you find appealing, view the homes that meet your criteria, look into the potential of a given area, evaluate trends and determine where you want to get involved. Leave no stone unturned while you are preforming research. It is even a good idea to contact any investors in the area. Their information may prove to be invaluable while investing in an unfamiliar area. Not until you feel comfortable moving forward, should you think about buying a home.
Understand Available Financing Options
Despite countless hours of research, investors can’t move forward without securing the appropriate financing. Without the means to purchase a property, intensive research is futile. Therefore, you need to secure financing that both works and that you understand. One of the first things you need to do when buying a home is to talk to a qualified lender, as to become preapproved for a mortgage loan. This will prevent you from falling in love with a property that is out of your budget. In gaining preapproval, you can also save a lot of time during the closing process. There is perhaps nothing more frustrating than getting to the closing table, only to find out you are not approved to purchase a particular property.
The following steps have been designed to help you better understand your finances:
- Know your credit score. Your credit score will dramatically impact your down payment and monthly mortgage payments.
- Get preapproved for a mortgage. Know what your budget is before you even begin looking for a property.
- Pay close attention to your savings. You will usually need more money, on top of the down payment, to get the ball rolling.
- Research the financing options that are made available to you and pick the one that suits your needs.
Negotiate With The Seller
The nature of the real estate industry allows for negotiations to reign supreme. In fact, some investors have made fortunes negotiating great deals in their favor. However, relatively new investors may not be as accustom to the idea of negotiating a deal as they should be. Often times, fear will inhibit a new investor from entering into negotiations with a seller. This, of course, is not advised. Negotiations should not strike fear in the heart of a buyer, nor promote mischievous conduct. They should be focused on building relationships, speaking honestly and coming to a mutually beneficial agreement.
Once you are familiar with the concept of negotiating, and recognize that it is meant to be mutually beneficial, do not procrastinate. You never want to wait too long before entering into negotiations. Desirable homes will not remain on the market for long; so a little hesitation may prevent you from buying the home that meets your criteria.
Have confidence in the research you have done up to this point and make an offer that reflects the data you have. You may even want to enlist the services of someone that is more knowledgeable of the negotiation process. Having them on your side will facilitate a smoother transaction for all the parties involved. An agent can prepare you for what is going to happen, and have your best interests in mind. Some states may even require that you have an attorney or closing agent present.
Home Buying Don’ts
Don’t Do It Alone
Regardless of your experience, buying a home is no walk in the park. There are several unpredictable variables that need to be accounted for and a lot on the line. At the very least, the decision should weigh heavily on anyone. New investors, however, are at a particular disadvantage. Therefore, inexperienced investors are advised to seek the help of others. Having a real estate professional on your side cannot only help you navigate the onslaught of information that will inevitably come your way, but secure piece of mind as well.
Prior to finding a home, investors will want to conduct the appropriate research. You will need to consider the following:
- Seller representations
- Home inspections
- Sewer & plumbing conditions
- Local schools
- Zoning restrictions
- Potential neighborhood issues
- Public transportation
Having a real estate agent, or even an entire team for that matter, on your side can help you obtain this information. Working with the right person will make sure that this information is accurate and conducive to a timely and profitable transaction. When choosing a partner, consider the following:
- Buyer’s Agent
- Attorney or Title Company
Don’t Forget The Home Inspection
Real estate investing requires an acute attention to detail. There is perhaps no other business in which due diligence is more important. Having said that, investors are advised to personally oversee every aspect of their transaction – no exceptions. In the event a seller provides you with an inspection report, kindly thank them for their effort, but insist you will conduct an inspection of your own. There are too many variables out of your control if you rely on the inspection of someone you are not familiar with. This does not mean you don’t trust the seller. It simply demonstrates your work ethic and attention to detail. Moreover, the inspection is too important to leave in the hands of someone else.
Once you have made it clear that you would like to conduct an inspection of your own, hire an inspector you trust. Do not even consider inspecting the property on your own merits. Regardless of how much you think you know, every house is different and warrants the attention of a professional. Even something as trivial as the local weather or the land on which the property sits can influence the direction an inspector will proceed.
Once the inspection has been initiated, inspectors will look for defects or malfunctions in the systems of the home. Their evaluation will include, but is not limited to:
- Structural damage
- HVAC system
- Surrounding land
- Drainage issues
- Retaining walls
- Pest control
A thorough evaluation will reveal any issues with the house. However, a good inspector will also point out issues that may arise in the future. The report will give you a good understanding of the work that needs to be done, therefore making your repair estimates more accurate.
The prospect of buying a home can affect investors in a number of different ways. For some, acquiring a home is something that is nothing more than routine. They have systems in place for every scenario and know exactly what they are doing. Of particular concern, however, are those with little to no experience. For “green” investors, buying a home can be a very daunting process. The magnitude of the impending purchase serves to compound any rash decisions. More often than not, new investors find themselves overwhelmed by the process and rush to the closing table.
Make no mistake; rushing into a purchase is a recipe for disaster. Neglecting due diligence will prevent you from viewing the process objectively. Before you know it, you are turning a blind eye to things that require the utmost attention. By the time you are ready to buy the home, your investment is already in jeopardy.
The key to patience requires an understanding of the housing industry. Savvy investors are aware that houses will come and go as sure as the sun will rise. More importantly, you do not need to settle. It is far better to pass on a home than it is to rush into a deal unprepared. Unless you are looking at a custom home, chances are you will be able to find exactly what you are looking for later down the road.
Conversely, rushing does not only apply to buying a home. Too many investors leave a deal too quickly. While some homes may lack curb appeal or certain criteria, they may excel in other areas that are less apparent but equally important. Look at each house as a whole purchase, as each will have their own set of positives and negatives. A simple and affordable repair could turn that ugly house you just drove by, into your dream home.