There is nothing like the real estate closing process; it is simultaneously scary and exciting. It’s worth noting, however, that the real estate closing process doesn’t have to coincide with fear or trepidation. In fact, I maintain that closing a real estate deal should be met with nothing but the utmost excitement.
Most investors have an idea of what they want, but are not sure how to get there. Between all of the different variables involved in every deal, finding a home you want can be confusing and frustrating. The best way to get your first deal is by having a defined plan in place. Here are the five steps to make closing a real estate deal easier.
The Real Estate Closing Process
1. Price: The starting point for your first property has to be the price. You can have big plans for what you want to do, but your budget may stand in the way. By not knowing what you can afford, you will end up wasting your time looking at houses that are not realistic for you. You need to know how much cash you have access to or what you are approved for. Lender financing has become much more difficult for investors. Banks are still closing loans, but credit score minimums and down payment amounts are much higher than in previous years. The amount of money you have available may not get the type of properties you desire. Once you know your preapproval amount or know how much capital you have available, you can begin your home search.
2. Financing: Price and financing typically go hand in hand. The amount that you can finance will give you an idea of what ballpark price ranges you can look at. Even if you are pre-approved or have capital to spend, you need to know the specific numbers for any repayment or cost of using your money. For lender financing, most investors aren’t aware of the amount of closing costs and property taxes they need at the closing. In an area of high taxes, this could be thousands of dollars that will be needed at the closing. If you have your own capital or access to private money, you need to know the cost of it. These numbers will dictate the types of deals you entertain. Before you look at any properties, you need to have a firm grasp on all of the finances and numbers involved.
3. Goals/strategies: After you have a good idea of what you can afford and what the numbers are, you start thinking about specific properties. To help guide you in this process, you should know what your goals are. There are dozens of different strategies for investing in real estate. You can look for properties you can rent, you can flip and rehab, or you can wholesale to fellow investors. A good rental property may not make a good flip candidate, and vice-versa. You can be open to anything that comes your way, but your bread and butter should be properties that match your goals. This makes it easier for you to focus on properties that you really want and wont waste time. It will also help in working with your realtor. Instead of walking into a real estate office and saying you are looking for investment properties, you will have a price range and know the type of deals you want.
4. Location: Step four in closing real estate deals makes you to start looking for properties. Most new investors jump when any new deal comes there way, but this is often counterproductive. You end up driving all over your area without a plan. Instead, pick a town or a radius of towns and make that your focus until you get more comfortable with the business. The more properties you look at in an area, the more you will start to know it. A lot can change inside of a specific zip code in just a few turns of the clock. Once you start to know an area, you will know where you want to invest and which areas to avoid. You will know the comparable sales and the price points you should be looking at. This leads to better deals and a more efficient use of your time.
5. Make an offer: You can’t get a deal closed if you don’t make an offer. Of course, this is painfully obvious, but it bears repeating. Many new investors face an imaginary hurdle after they find a home they like. There is often hesitation in actually submitting an offer. They don’t want to offer too low in fear of getting rejected, and they never want to offer too high in fear of getting a bad deal. At this stage, you need to lean on your real estate agents advice and let them guide you. You never know what a seller may accept, so feel free to send in an offer and find out. On new listings or ones with a lot of activity, a lowball offer will not get the job done. However, on listings that have been on the market for some time, you never know. The bottom line is that you need to make offers to get deals closed.
The more offers you make and deals you close, the easier the process becomes. If you have lost deals or can’t find anything in your area, you need to stay patient. Closing your first deal may take some time, but it is something you will never forget.