When I was young a wide-eyed, I bought my first home off a family friend. Well, he was more of a guy that my uncle introduced me to, and I daresay that my uncle only knew him in passing.
The short story is that I trusted this guy too much, and ended up overpaying by a butt load! Whether knowingly, or unknowingly, that “family friend” rode off into the sunset with all my dollars – doh, I wish I had done more homework!
Whether you’re a newbie like I was, or a veteran, doing the proper due diligence when buying a home takes time.
Due Diligence is Your Responsibility
When doing your homework on a home purchase, you’ve got to be willing to knuckle down and do the work. This involves getting the right education, networking with people to find good deals, then poring over building reports, and financial documents.
This process is called due diligence. It’s “due” because it’s the minimum that’s expected of you when you buy a property. Yes, it seems like a lot of work. But hey, that’s par for the course.
Additionally, you and you alone must ensure that the deal is right for you. You can’t kick back and expect the bank, your agent or mortgage broker to work as hard as you.
Stop taking it so easy
Unfortunately, too many potential buyers are doing just that. They accept whatever price an agent puts to them. They accept whatever interest rate the bank offers.
If no one has told you this before, then let this be a warning:
It’s your duty to shop around, be cynical about what people are offering you and negotiate for a better deal.
Don’t be afraid to sound ridiculous. Don’t know the market rate? Just ask what you think is fair. Ultimately, you’re the one putting down tens, or hundreds of thousands of dollars.
So what if you’re dealing with professionals? They deal with so many home buyers, they’re very likely to have encountered even more ridiculous questions.
It seems crazy to me that I have to give this advice. But guess what? 15 years ago, I only wish that someone could have told me this same advice!
Do a physical inspection on the property
For crying out loud. Real estate is one of the very few investments these days that involves tangible property. So, treat it as such and do physical checks!
Think about stocks, bonds etc. There’s nothing to touch and feel.
Now think about the property you’re buying. If it’s residential, could you imagine people wanting to live there? The wind, the afternoon sun, water drainage – all these things matter!
Even if you’re buying a property for investment, you need to do a physical check to ensure that major repairs are not imminent, or that you’ll be able to rent the place out when the current tenants move out.
I mean, who knows? Maybe the current tenants are a young couple who can put up with the cold drafts and dampness (mold). But what if they have a baby? Could they still stay there?
Would someone else come and take their place?
On the flip side, doing a physical inspection like this can reveal to you opportunities to knock down the price of the property. Get the seller to make concessions! More than the cost of repairs if you can.
You can then treat the place as a fixer-upper and make some good coin from doing it up.
Bonus tip: Escrow
Some banks require you to put funds in escrow to cover property taxes and insurance. Others don’t.
Thought you got off the hook right? No, go and set aside the funds anyway.
In a separate transaction, I thought I’d have enough free cash available to pay for all of this when it came due. But lo and behold, I was frantically calling around to scrape together enough cash come bill time.
I made mistakes in the past. Major ones. Now, I don’t want you to make the same mistake. So, I’m sorry if I sounded harsh here. Just know that this advice comes from a very serious place.
Now, let me ask you – are you an experienced buyer with advice for first-timers?