You have decided that you’re ready to plunge into the world of real estate investing.
Recent media articles have done a good job of making you doubt your decision. After all, ‘the property market could not recover for another few years’, ‘the economic crisis might continue for years to come’, ‘real estate investing is out of fashion’, ‘tenants are increasingly unable to pay their monthly rent’. The scaremongering list goes on and on.
There’s no question about it: many people are uncertain about real estate prospects right now. Even though a number of those risks might be ever-present when buying real estate, unfortunately, there are a few more.
Luckily for many buyers, they have been doing their due diligence and thanks to investing some energy, time and effort, they’re able to reduce their overall real estate risk exposure.
Although the process isn’t complicated, it must be said that it is time-consuming.
Here’s a short list of what ought to be your minimum due diligence homework when researching properties and reduce the odds of something going awry:
(1) Does the home buying process make sense?
How much of the contract that you’re about to sign do you actually understand?
Enough to explain it to someone not familiar with real estate? Words like contingencies, bond financing, making offers and appraisals are things you now understand what they mean?
(2) How about real estate & SARS?
Now that you’re about to sign on that home purchase deal, are you aware of the tax advantages you will receive?
Perhaps time to consult your tax accountant at this time to find out the benefits!
(3) Financial condition of your Homeowners Association (HOA)?
Buying a property belonging to a Homeowners Association means more than just some meetings you need to attend per year.
How are these operations run? How do their finances look like? What are the chances of a surprise increase in fees or special levies in the next few quarters?
Time to weed out those badly-run HOA’s!
(4) What are the liability and property insurances?
As we all know, certain insurance policies cover certain risks and limit payout on those.
Which ones are they? Are the coverage amounts sufficient for the property?
Make sure to do check if you have the right coverage on a yearly basis.
(5) Have you thought of doing a home inspection?
The buyer ought to think twice before foregoing the home inspection.
Even though not cheap, the inspection will result in a list of possible costs, repairs, replacements etc you will be facing as the new owner.
Use this against the seller’s offer price during the negotiations or worst case, back off completely if these costs run too high.
(6) Does all of this make financial sense?
Whether it be buying a personal residence or renting it, there are some basic elements that one needs to cover:
- If you’re going to be moving about a few times in the short-term, perhaps stick with renting. And avoid unnecessary stress.
- If you’re less mobile, buying for the long-term is the way to go.
A short and simple due diligence list such as the one above will help you reduce the possible risks associated with being a future homeowner immensely.
Caveat emptor! Buyer beware!