Step Seven is where the rubber hits the road. A lot of people investing in real estate for the first time feel a lot of anxiety at this step. If you begin to feel anxiety yourself, rest assured that this is normal.
In this step, you travel to and visit your short list of potential rental properties with your realtor and you put in an offer on a property!
The thought of putting in an offer on a property may make you feel like the picture of the monkey above!
Like I said, feeling anxiety is normal. If you have followed Step One through Step Six thus far in this article series, you will be in a very strong position when you put in an offer on your first rental property.
After you have viewed the short list of potential rental properties with your realtor, it is up to you to pick one of these properties and put in an offer to purchase.
Since these potential rental properties are nearly identical (property type, geographical location, etc.), it is wise to base your final decision on which property to chose based on which property yields the highest monthly cash flow.
You will be able to know which property will yield the highest monthly cash flow by analyzing the property using the 10% Rule, referred to in step six.
The Holy Trinity of Writing Offers
I heard a saying not too long ago referring to ‘social media’. The saying was that,
‘The Holy Trinity of Social Media is Facebook, Twitter, and Linkedin’
I thought that this was a creative saying, and quite accurate as well.
With regards to offer writing there is also a ‘Holy Trinity’ of conditions that you must abide by.
Holy Trinity Rule #1
The Financing Condition
In your first offer to purchase that you submit, you will be entering in a financing condition into the agreement.
What is The Financing Condition?
- It is a condition built into the purchase and sale agreement that protects the interests of the buyer (you)
- It allows the buyer to arrange financing for the property. The condition is time sensitive, meaning that buyer has X amount of days in order to fulfill this requirement.
- If the buyer is not able to obtain the necessary financing for this property in the required time period, the condition is structured such that, it allows the buyer to walk away from the deal.
- This condition should be included in every single offer to purchase that you make.
Holy Trinity Rule #2
The Home Inspection Condition
As equally importnant as the financing condition is the Home Inspection condition.
- You should never skip getting a home inspection.
- I know some real estate investors who foolishy skipped this step, and it ended up costing them thousands of dollars in repairs.
- You always need to have a qualified home inspector inspect the house before you purchase it.
- Just like the financing condition, you have a set amount of time in order to carry out the inpection. If for whatever reason, the inspection is not favourable to you, you can walk away from the deal.
- Instruct your realtor when he/she is writing up the offer to purchase to insert the home inspection condition into the offer.
Holy Trinity Rule #3
Lawyer’s Approval Condition
Before you agree to purchase a rental property, you will want your real estate lawyer to review the purchase and sale agreement.
Having your real estate lawyer review the purchase and sale agreement provides a check and balance in the process.
Not all real estate transactions are the same, and not all of them are straight forward, that is why you always want your lawyer to review the deal before you agree to it. Good real estate lawyers have years of experience working on real estate transactions. They have worked on many straight forward transactions, and they have seen their fair share of deals end up going sideways and upsidedown…
If there is something unusual in the deal, the real estate lawyer will be the first to notice it, and can advise you accordingly so that you are able to mitigate your risk.
Once you have put in your offer, and all three of the Holy Trinity Conditions have been satisfied…
Guess what?!
You have just purchased your first rental property!
Take some time to click your heels and celebrate!
So now, all of the hard work is done, right?!
Not really.
The easy part is over. Now the hard work begins…
Stay tuned for Step Eight of How to buy your first rental property…
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Related Articles:
Step One – How to buy your first rental property
Step Two – How to buy your first rental property
Step Three – How to buy your first rental property
Step Four – How to buy your first rental property
Not sure which I like better- the picture of the monkey, the upside down house, or the dude celebrating. 🙂
Great post, Neil!
Thanks for the comment Steph!
My personal favourite is the monkey.
However, the guy clicking his heels is a close second.
He is so into it, and he just won’t stop. 🙂