If you are a real estate investor and you have followed the steps we have provided in previous articles, that means that you have a big profit deal on the table. Now you just need to seal the deal.
However, before you actually close on the property you will have a window of opportunity to perform due diligence on the house.
Of course, that is if you in fact included the right clauses in your written contract that you need to include. For instance, you should have included a clause that allowed you to perform a home inspection, an appraisal, and a financing clause.
So then, if you’re not satisfied with the home inspection report or if any defects that arise from the home inspection don’t get fixed, you can back out of the deal.
Likewise, if the appraisal comes back saying that you are paying too much for the house based on your real estate investor formula for profitability, and the seller won’t come down on price – in this case – you can back out of the deal.
Next, if you cannot secure financing to buy the property, you should have a clause in the written contract that says you can back out of the deal without being financially obligated to the deal.
The last thing you make mention here is that you should also have something in your contract that lets you back out of the deal in the title on the property is not clear.
After all, you’ve just taken sellers word that all is well with the property but now that you have a contractual agreement, you can perform the necessary due diligence on the property.
Due Diligence and Preparing for Real Estate Closings
These things aside you’ll move forward with your due diligence in preparing for the closing.
During this period after you have assigned contractor before the closing, there are several people that you need to call, including:
- attorney or closing agent
- home inspector
- bank or private lender (for new loans)
- termite inspector
- contractor (from rehab projects)
- insurance agent
Please note, you should not take steps of getting an appraisal, home inspection, termite inspection, etc. completed on the house until you get it under contract, otherwise you will waste a ton of money doing this whole process before you reach a contractual agreement with the seller.
Property Title Check
The next thing to consider with real estate closings is title checks. Your real estate attorney or closing agent will perform a title search on your property after you deliver the necessary documents.
Performing the title search is so important because several things are accomplished:
- the title search ensures that the person selling the house to you is the rightful owner of the property
- up to ensure that you get the correct spelling of the name or names of the property owner(s), including whether a middle name or initial is used in the title. It is critical name or names that go on your closing papers match, letter for letter, the spelling of this name or names in the title deed
- as I sort of hinted at, it reveals whether there are multiple owners involved. So, if husband-and-wife or mother and son are on the title, both of them will need to sign the deed and closing papers for there to be a complete sale
- it will expose any other parties with an interest in the house
- it will show any prepayment penalties or balloon payments associated with the loan
- it will show the original loan balance on the property, as well as all the loans taken out on the property
- it will show where the property taxes are on the property – and whether they are paid up to date. Since property taxes are normally the most senior lien against the property, these are big deal to ensure
- it may also reveal HOA fees, and whether they are current or delinquent
If the title checks out okay then you can move forward towards closing. Keep in mind that you will likely get title insurance policy at the time of closing.
Ordering an Appraisal
Another item on the to-do list for real estate closings is appraisal ordering. f you have purchased a fixer-upper property as a real estate investment, one important thing to remember with appraisals is that you will want and after repair value appraisal, not an asset is appraisal.
You may need to get a repair list to the appraiser if the house needs a lot of work. You want them to be sure to take into account everything that needs to be fixed on a house in need of rehab.
However, if your house just needs minor cosmetic repairs, such as carpet and paint, then you don’t need to worry as these are usually considered anyway.
You should not proceed with real estate closings without inspecting the property. There are two because inspections that you should consider performing. The first is the home inspector inspection. This inspection will analyze the condition of the major systems of the house and the condition of the house itself.
This will include the heating and air-conditioning system, the plumbing system, the electrical system, the foundation, the roof, appliances and other aspects of the property.
It is recommended to have a home inspection before on your property, particularly if you don’t have a good eye for checking all the systems of the property yourself. If you work in the industry of housing and know what to look for, or you are a seasoned real estate investor, then you may know what to look for.
However, if you don’t know what to look for and you don’t perform a self-inspection, then it is recommended that you have a professional home inspector perform the service.
The next kind of inspection is termite inspection. This one is a lot trickier. You see, termite can infest not only old houses but brand-new homes as well. It is something that many homebuilders don’t pay close enough attention to.
The good news is you may be able to find a good pest control technician to inspect the house for termites for free. Do this in exchange of you purchasing a pretty cheap termite policy through their company. These are usually $75 – $100.
Whether you are purchasing the property as your primary residence or as a real estate investor you want to be sure you have all the proper insurances. That’s why it’s important that you have a seasoned insurance agent on your team. Having the right insurances is a critical area you should address before completing real estate closings.
After you have taken all of these steps, you are ready to move on to the work of listing your property and getting it sold or rented out fast – if you are a real estate investor.
If this is your primary residence welcome home! I hope this gives you an idea of what you should be doing leading up to real estate closings as a real estate investor.
Take the next step, let Utz Property Management help you take your real estate investment career to the next level. Schedule your zero cost profitable portfolio strategy session today.