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External Issues That Can Derail A Good Deal

Written by Paul Esajian

There is a lot that goes into closing a successful real estate deal. From the moment you start looking for properties until the time you sign your name at the closing, there are numerous pitfalls and obstacles along the way. If and when you find a deal that appears right for you, there are still many landmines that must be avoided. In some cases, these are right in front of your face or involve members of your own team. If you want to make the most out of every deal and have no regrets moving forward, you need to see the process through every step of the way and with everyone involved. Taking control of a deal will help mitigate external risks.

The first obstacle deals with yourself and how you evaluated the property. It can be tempting when you are searching for deals to bend the numbers to meet your goals. Between looking at bad comparable sales, lowball budgets and unrealistic turnaround times, you can shape the perspective to meet your needs. In the end, all this is doing is hurting yourself and your bottom line. Let the numbers and the data speak from themselves. If you need to pass, there will always be another deal on the horizon. If you get involved in a deal where the numbers don’t make sense, all you are doing is hurting yourself.

Assuming the numbers work and the deal is a go, there is the possibility of running into trouble with financing. Unless you have your own cash to use, you will be getting the funds either through lender or private money financing. You need to make sure that your approvals are constantly updated and in place. Even if you are pre-approved you still need to make sure that there are no issues with title, insurance or appraisal. Before you start spending money on any rehab work or, even worse, blowing potential profits, you need to know you can close on the property first. With the mortgage approval process and guidelines ever changing, the approval is far from a guarantee, regardless of how good the application or property appears.

One of the last things you will do before the approval is look for homeowners insurance on your new property. Usually this is not an issue, but there are times when it could become a problem. Even if you are not located directly near any water, what is considered a flood zone has expanded. This insurance is much more expensive and difficult to obtain. This is the case with investment property homeowners insurance in general. There are an increasing number of insurance companies that won’t insure rental properties in certain areas. Instead of waiting until the week of closing to start making calls, you can start soon after your offer is accepted. At a minimum, you will have options and know exactly what you are paying per month. You never want to delay the closing because you don’t have your insurance in place.

Your attorney plays a much bigger role in the closing that you may realize. Many new investors and buyers in general are taken aback when they look at the statement at closing and see what the attorney’s fees are. In essence, they may not talk to their attorney more than a few times before they sign the closing papers. It is with difficult deals and contracts where they earn their money. In addition to reviewing the contract and offering up changes or protection for you, their company is also pulling the title on the property and removing any existing liens. Finding a lien on a title at the 11th hour can not only delay the closing, it could put it in jeopardy if large enough. Also, the protection that a good attorney provides by reviewing your contact and negotiating with the seller or their attorney can easily be understated. You may not see or know all of the work they do, but a good attorney is worth whatever they opt to charge.

The closing itself can be a wonderful day, but it can also be very chaotic. Regardless if you are on the buying or selling side, you need the cooperation of others to close the deal. If there is a last minute issue with someone buying your property, it will present a major problem. If you are the buyer and the house is not in the condition you expected, you can ask for a credit but there is no guarantee. It is important not to let the pressure of the closing date or pressure from outside people push you into making decisions you aren’t comfortable with. Your realtor, attorney and even business partner may have financial motivations to close that aren’t in line with your best interests. Issues come up with most closings and how you react and deal with them will determine just how major they are.

Making an offer on a property you want and having a willing seller is sometimes not enough. If you are a new investor, you need to develop a checklist and a process of how you will proceed with the closing. The sooner you can knock off items on your list, the more secure you will be in the deal and the less you will leave to chance. Some things like the appraisal, inspection and title are out of your control, but you should be on top of the insurance and financing. It certainly isn’t easy to close a deal, but when you do, it makes it all that more rewarding.