Do you want to invest in real estate, or do you plan to invest in real estate in the near future?
When investing in real estate, everyone thinks they have the recipe to get there:
- Buy a property
- To rent
- Use rents to repay the bank
If the method were so simple, everyone would be rich. Of course, it is a little more complicated than that, and most investors make mistakes that prevent them from achieving dazzling success.
Mistake # 1: Buy as a couple
It can be tempting to buy as a couple to reduce the investment.
Without going into the apparent human relations problems, know that legally, “No one is forced to remain in indivision.” This means that if the other wants to sell, he can demand it, and you cannot stop it.
In addition to limiting potential problems, you can maximize your profits with your spouse if you do not buy as a couple.
Mistake # 2: Do not negotiate your sales agreement.
With the sales agreement, the seller and the buyer formalize their arrangement:
- The seller agrees to sell at the agreed price, to the buyer, within a given time.
- The buyer agrees to purchase at the agreed price, from the seller, within a given time.
The sales agreement can be signed at the notary or the real estate agency. In any case, it should be written by a professional and should be included in the agency fees and the notary fees. The sales agreement must consist of “conditions precedent,” which are clauses that protect you as a buyer. The most common is the suspensive clause for obtaining a loan. If you cannot secure your mortgage, you no longer have to buy the property. You can disengage without consequences, and the eventual escrow is returned to you. In the sales agreement, you can include a rate. For example, “subject to a suspensive condition of obtaining a real estate loan over 20 years at an interest rate of 3% maximum”. If you get credits, but at 3.1%, then you can opt-out anyway. You can also include any suspensive condition. For example, you can indicate that you will only buy if your contractor sets the amount of the work unless you pay it (x Dollars), or that you will buy only if the co-ownership, or the town hall, according to the case, gives you the right to do such or such work.
The only limit is what the seller will accept but protect yourself to the utmost. See what is essential to you, and your notary can transcribe it as a condition precedent.
However, you can negotiate the price down with the seller, saying that you sign without a suspensive condition, but that means you are obligated to buy even if the bank does not lend you money. Therefore, it is a weapon to use with great care, but it can be effective because the seller will know that you will not waste time.
Mistake # 3: Do not use a construction broker
Finding contractors to renovate a property is a headache, especially when you are not in the business yourself. Construction brokers visit your property, know the prices, and find the contractors themselves at the best price. These brokers are helpful when you do not know much about construction or do not have time to get quotes from all trades.
Mistake # 4: Thinking that you have to pay the notary fees
The notary fees are the buyer’s responsibility, but it is not a legal obligation. With the seller’s agreement, you can therefore ask to make an “act in hand.” In this case, the seller will pay the notary fees. The main interest of this type of act is to avoid paying large sums of money in notary fees. Furthermore, banks often refuse to finance these costs.
For example, you want to buy an apartment for $200,000, but the notary fees will be $16,000. As we have just commented, banks do not like to integrate notary fees into credit, so your note will only be $200,000. Fortunately, because you do not want or cannot pay $16,000 cash, offer the seller $216,000 “act in hands.” This will allow the bank to lend you $216,000 because it will consider that it is the property’s price, and the notary fees are the seller’s responsibility. For the seller, it does not matter; he will pay $16,000 to the notary and will have $200,000.
Mistake # 5: Buy at Multiple
It can be tempting to buy a property for couples, of course, but also by partnering with another investor because it is reassuring. Without going into the obvious problems of human relations, know that legally again, “no one is forced to remain in division.” In short, if you buy two properties because you have an investor, you will be committed to the full price of the property. On the other hand, you will only receive half of the rent. Therefore, your debt capacity will be limited when you want to buy another property. Do not invest in more than one property if you cannot do it without the other investor.
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