The risk in real estate investment comes from not knowing what you are doing.
The real estate investments have been and remain one of the alternatives most common in several countries, to invest and profit from our savings. Investing in real estate is a great alternative to diversify portfolios.
Advising small real estate investments is not difficult, you just need to know how to reach them with your personal branding, offer them good investment alternatives in your area and show you how you will obtain profitability with your investment.
This article is the 2nd part of the article: How to Advise Small Real Estate Investors (Part I).
Investment Property. How to Negotiate the Purchase.
Your client has found the type of real estate investment that best suits their needs and profile. After visiting with you some properties, you have decided where to invest and in what type of property to invest. It is time to negotiate with the promoter or owner and to obtain the best possible purchase conditions for your client and for you.
From a real estate agent you become a real estate buyer, which is not bad at all. Now you can experience what it feels like when you take the “chip” of the buyer and confirm what are the real needs , concerns and desires of a person looking to get the best property in the market at the best price.
First you do the recognition and you agree the sales commission with the developer or with the owner of the property, you check all the documentation and then you and your client go to inspect the property, the documentation and your client signs the purchase.
In real estate investment things work like this: the investor makes money when he buys; Maximize your profit when you manage the property and collect the profits when you sell.
In real estate consulting , when buying, you should not only negotiate the price and the sales commission as a real estate agent, but also other factors such as the payment of certain expenses , taxes and who does what.
For example in new properties, you must negotiate who pays the surplus value, and who pays the mortgage subrogation expenses for houses for sale in Islamabad if any.
“In properties of 2nd occupancy, the date on which the property will be occupied and what furniture and property items will be sold together with the property must be negotiated with the seller.”
Remember that the owner must provide the title of free property charges or claims of other parties against your new home. Claims made by third parties against your home are known as “liens.” In case there are, as it may be the case of having the property a mortgage, you must negotiate who pays what.
The sale agreement must stipulate the refund of your deposit in case the sale must be canceled because you have not been able to obtain a mortgage loan. For example, the sale agreement should allow the cancellation of the sale if the seller cannot obtain mortgage financing at an interest rate equal to or less than an index specified in the agreement.
You must also negotiate to make an inspection of the property before buying it. An inspection determines the state of electrical, plumbing, heating and cooling systems. The structure should also be examined to ensure its solidity and determine the condition of the roof, cladding, windows and doors. The lot must be arranged so that the water does not drain into the house and enters the basement.
We recommend that the real estate investor be responsible for the cost of these inspections, so that the inspector works for him and not for the seller. Include in your purchase agreement the right to cancel the sale if you are not satisfied with the results of the inspection. In that case, you may want to renegotiate at a lower sale price or require the seller to make repairs.
It is necessary to agree with the owner how the expenses related to the property, such as taxes, costs for drinking water and wastewater services, community expenses and utility bills will be divided on the closing date. Unless otherwise agreed, you should only be responsible for the portion of these expenses due after the sale date.
Remember that as a buyer of a property you have the option of choosing the notary and the lawyer.
Investment Property. The documentation.
Once you have negotiated and agreed all the terms of the purchase sale with the owner or the promoter, it is time to show your client the importance of the documentation and the purchase, rental or option to purchase contracts.
Of course, the real estate investor knows that the documentation is important, but he does not know how much time you should invest in making sure that the documentation and the drafted contracts are correct. Get your client to value your work
It is also time to also show your client how the legal procedure of buying and selling is simple, no matter how much some lawyers try to mystify it.
The contract of sale, together with the rental contract, are the most important documents of the entire investment process. In the contract of sale, all the details of the sale are established, not only the price, but also the causes for which the contract ceases to have value , the form of payment, the reasons why the owner must reduce the price of sale, the option to check the property within a certain period, etc.
Inform your client about the content of the contract, the taxes to be paid, the additional expenses and the process to follow to register the property, in addition to being your obligation as a real estate seller, it allows you to again show your professionalism to the client and solve some problem.
“Some real estate agents who have reached this stage, let all this documentation be processed by a lawyer and it is this person who informs the client about taxes, additional purchase expenses and mortgage processing. This cannot happen when you work in the area of real estate investments “.
Remember that you are helping the client to make a real estate investment in capital smart city and you must accompany him throughout the process.
Sales contracts must be supervised by a competent lawyer, but they must be written with simplicity and in an easy to understand language.
When there is an economic transaction between two parties, the good disposition and willingness of both parties to comply with the terms of the transaction is more important than the contract signed for that purpose. In other words, if you don’t trust the good predisposition of the seller, it is better that your client invests elsewhere.
Having to prosecute a promoter or owner for breach of contract is, on many occasions, an arduous, slow and unsatisfactory task, although in the end you are right.
The content of a contract of sale, a contract of purchase, purchase option or reservation … can be very varied and there is no single formula for each situation. Each property is unique, so the content of each contract must also be unique, particularly when it is found investing significant capital.
We do not want to expand on dealing here with the content of the sales contracts; We only want to indicate that every contract of sale must include 2 clauses that are often deliberately forgotten or not by the selling party:
1 .- a time of inspection of the property to ensure that everything is correct and where the buyer has the right to compensation otherwise; Y,
2.- inclusion as an annex to the contract of the Quality Report or technical data of the property where it is ensured that the property is built with the materials described.
Other documents that are part of the purchase sale and that must be reviewed by you and your client, are the documentation or copy of the legally required authorizations for the construction of a property and the Urban Identification Card or certification accrediting the land planning circumstances .
If your client decides to invest in new housing, demand from the developer the “Certificate of Habitability” or “First Occupancy License”. This license is an administrative document issued by the General Directorate of Housing in which it is stated that the property is suitable for its destination, that is, the dwelling.
In real estate investments, another of the contracts that is quite important when investing in a property is the lease. A lease, to be effective, must take into account the tenant’s interests in addition to those of your client. A lease agreement that includes only the rights of the owner with slightly abusive clauses to guarantee the perfect maintenance of the property and the collection of rent do not help to get the right tenant.
In most cases, the problems that arise between the tenant and the lessor are the fault of poorly written lease agreements.
All rights and obligations that may derive from a rental contract are regulated in most countries by the Urban Leases Act. It is not necessary that the lease contract necessarily follow a specific model ; it is enough that both parties express in writing the agreements they reach in this regard.
The contract can also be made in a public deed concluded before a Notary and be registered in the Property Registry.
| Investment Property. The foundership.
In real estate investments there are several ways to finance the purchase of a property. As with the credit capacity, with which your client has more capital available to invest than he originally thought; Your client also has the possibility of embarking on a real estate investment project even greater than that provided by his credit capacity, if he seeks the support of other people in the same situation.
Therefore, the first thing that you must solve to advise him in the financing of his investment is to know if your client prefers to invest him / her alone or accompanied by other investors in his same situation. From experience we know that the client prefers to invest accompanied by other people in the same situation; However, in most cases he ends up investing only because he does not find the partner or partners with the profile similar to yours.
If your client prefers to invest alone, the only thing you can recommend is to calculate the cost of the entire operation before applying for the mortgage loan, so that you can have a small financial reserve to cover unforeseen expenses.
Investing alone is more a matter of personal attitude than profitability; although it is still true that investing in a group gives access, in certain cases, to real estate opportunities that would be impossible to consider with a small capital.
A different way of investing alone in real estate is by partnering with a real estate developer to build a group of real estate or restore a property. In addition to the obvious advantage of sharing the risk, having a promoter partner is both practical and convenient. Having a partner with experience in the real estate sector brings more security to the project; Just as a capitalist partner provides the developer with savings on bank charges or starting a larger project.
Being a member of a real estate developer may be a good idea, but if the investor’s capital does not exceed $ 800,000 , it is more profitable to invest in finished properties.
Investing in a group has several advantages; In addition to saving on administrative and legal expenses, getting better advice and minimizing risk , it is more fun and enjoyable than investing alone.
The best way to invest in a group is to create a company whose activity is exclusively real estate investment.
In real estate investments you have to know how to create several companies of this type and those that work best are those in which the partners can contribute their professional knowledge to the management of the company, (lawyer, construction manager, architect, tax advisor, …), and where an action plan with specific objectives is designed .
We remind you that every real estate investment objective must have a definite beginning, an execution period where the investment matures and a completion date where the objective is reached, the property is sold and part of the profits are invested in other real estate, or not.
What keeps companies of this type is their ability to buy, their ability to sell and their ability to distribute benefits to their partners at least once a year. Benefits can be distributed if every year some property is bought and sold.
The ideal number of partners in these societies tends to be 4 to 6 people and the more capital they can contribute to the investment, the greater the benefits. Suppose that a minimum capital contribution is established for members of at least $ 400,000. There should be no limitation to the maximum contribution. Minimum contribution that should include the credit capacity provided by the partner.
If you have a real estate investor who would like to invest in a group to gain access to a business opportunity where he needs more capital than he / she can contribute, help him find those other investors who would be willing to invest in the same circumstances.
In real estate investments, the expectation of advising a group of investors that has been created with your help should motivate you to present an action plan to your investor client to find at least 3 partners willing to invest in this sector and create a partnership for this end.
Creating an investment company is as easy and fast as creating a limited company. The priority is to find the investors that accompany your client in the investment. With the appropriate public relations strategy in 2 or 3 weeks you can capture and select the investors that your client needs.