In recent posts, we’ve been outlining how to analyze your real estate investment options, and we’ve provided a few calculators to help you run the numbers. It’s also important to know the property itself, by doing what you can to inspect it. Here we discuss the third filter through which to explore your investment:
Filter #3: Property Inspection and Offer
If a deal is good, you don’t want to wait. After doing the numbers, submit an offer quickly, while leaving yourself a contingency clause in the contract, which allows you to back out if you need to without losing earnest money or exposing yourself to legal issues. Then, once you have the property under contract, perform a physical inspection to ensure there are no major issues that will increase your costs significantly. In most cases, I recommend paying for a home inspection.
If the inspection looks good, move forward and execute on the contract. If it reveals issues that will prevent you from profiting on the deal, back out of the contract.
I learned to do my due diligence.as a result of painful experience in my early years of investing. As a teenager I purchased three properties. With those investments under my belt, I naively believed I was invincible. I was in a hurry to invest and found a deal on some waterfront property. I spoke with a real estate agent about it, who was very convincing. My plan was to build a cabin on it. I bought the property, sight unseen, for $16,500.
When I came to inspect the property four months later, I discovered that it was underwater. It was in a flood zone and was underwater for seven months out of the year. I could sell the property today for about $5,000. But I’ve kept it all these years as a thorn in my side to constantly remind me to do my due diligence.
In my next post, I explore the fix-up costs you need to undertake before you can rent out your property to produce income.
In the meantime, I’d love to hear from you if you’ve had any interesting experiences in real estate investment. What were they? And what did you learn? Thank you for sharing!
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