Updated: Jul 13, 2022
We talk to lots of clients looking to invest in real estate. I commend each and every one of those who call us first before jumping prematurely into a deal. That’s a great indicator of future success — a willingness to learn and recognition of what they don’t know (and need to know). There are a few key issues that I try and share with these entrepreneurs to make them wiser along the way:
Don’t Skimp On Due Diligence. It’s seems like an obvious piece of advice but you’d be surprised how many folks underestimate the benefits of investigating their target property. This is usually a big mistake. Take the time to conduct a thorough review of the physical condition of the property and its key systems. Check local zoning and building codes to ensure that your intended use of the property is permissible and possible. Pay someone to conduct a thorough title search and examination for hidden defects in the title. Failing to do any one of these can result in a nightmare investment.
Understand the Lender Process. Most investors need a source of financing for a deal. If you plan to seek a loan from a bank, it’s a good idea to interview banks before you apply for a loan. Ask them about various loan products and their approval process. Find out what information and documents you need to have ready for review. When the time comes for you to apply, you will already have the beginnings of a relationship with a lender and you’ll be better prepared to go through the loan process faster and with a greater chance of success.
Timing. Real estate deals are often time sensitive. Sellers may have other bidders and want you to close quickly. Your loan commitment has an expiration date. There’s a lot that has to happen for a closing to come together. Talk to one of our attorneys about the closing process and get an estimate of how long you might expect the process to take. If you enter into a deal without understanding timing, you could not only lose a security deposit but also the property.
Brad’s Story: Consider Brad’s deal gone wrong. He bought a property and intended to operate his truck repair business from the building already on the property. He did no investigation into either the local zoning codes or the title to their property. After he started repairing trucks, he received a citation from the local municipality informing him that the repair business was not among the types of commercial activities permitted by the local zoning code for his property. He was unable to obtain any kind of variance and no exceptions to the code applied to him. As a result, he was forced to find a new location for his business and is stuck with a property for which he has no use.
You don’t have to be uninformed about a real estate transaction. Call one of our attorneys before you sign an agreement. We can help you plan for success.