Tests, tests and more tests
#יםמהשבוי Diana Pinhasov, #Post4
After we have already strengthened the mindset and also built a network of people who will work with us and we are ready to close deals, it is time to remember that -
There are no shortcuts when it comes to purchasing a property and certainly when it comes to purchasing a property abroad.
We will always want to do all the possible tests in order to make sure that our purchase is worthwhile.
Today we will talk about a number of tests that, in our view, are essential:
*Initial transaction feasibility check before proceeding to submit an offer
The beauty of the USA is that all the information about the property and its surroundings is transparent and can be found on the Internet
And it's easy to do a preliminary test for the feasibility of a deal before we even want to send the broker to inspect the property.
The initial inspection includes a check of the direct information specified about the property, including the property photos if any, based on which an estimate is made as to whether the property needs renovation. If we have not yet disqualified the property, we will also check the property's surroundings, crime levels, how much identical properties are being rented in the area, how much identical properties have been sold in the area recently, and how much the annual municipal taxes the property owner has to pay. We will put all the information in Excel and check if the numbers agree with us with safety margins for the Balthams. If the numbers look good, we will send the realtor to visit the property.
It is important that we remember that unexpected things happen and there can be unexpected expenses, so it is very important to take safety margins when we calculate whether the transaction is worthwhile.
Those who are interested in our Excel for an initial check for the feasibility of a transaction, are invited to write an email address in the comments and we will gladly send it.
If after the broker's visit to the property and the examination of the video he sent outside and inside the property, the property appears to us to be in a condition that suits us, we will submit an offer on the property.
*Inspections that must be performed from the submission of the offer to the closing
After you submit a price offer on a property and it is accepted, we have a very specific period of time to do all the inspections on the property in order to decide whether to move forward with the purchase, and there are some steps that we will never give up on (!)
We will usually agree in the contract that the inspection period on the property will be 10-14 days from the moment the contract is signed and the total period until closing will be 21-30 days if it is a cash purchase, and a longer period if it is financing.
1. First of all, the purchase process must be carried out by a title company approved and recognized by the state, which is actually an attorney's company that checks if there are foreclosures/debts/offences on the property. The title company provides confirmation that the property is "clean". All funds go to the title company and from there to the seller on closing day. So the process is very orderly and safe. Even the advance of the transaction (usually 1% of the purchase amount) we will choose to transfer only to the title company and not to the brokerage company, and we will also make sure to anchor in the contract that the advance money will be returned to us if during the inspection period we decide to withdraw from the transaction.
2. The inspection of the property by a qualified inspector who inspects the property from A to Z and sends us a detailed report of the condition of the property on all its levels.
We conclude that the inspection period will be 10-14 days, so that we have time to send the inspector to the property, analyze the report we will receive from him, and we would like to leave time for a renegotiation of the price if additional expenses are discovered that we will have to spend on the property that we did not know about before the inspection.
3. After the inspection, if renovations are necessary, we will verify the price of the renovations through 2-3 contractors who will visit the property and submit price offers.
4. We will conduct an in-depth examination of the property's value by examining properties with similar parameters that have been sold in the area in the last six months (it is always important to compare apples to apples). Also, in order to understand what the condition of the properties was at the time of the sale, you can call the brokers who sold them and obtain information from them, and perhaps even interest them in future collaborations.
5. If it is a rental property, we would like to verify how much the property can be rented for. There are excellent websites from which you can obtain this information, for example: rentometer.com. And we would also like to verify the expected rent through 2-3 property managers who work in the area.
Another important thing:
6. In the event that we purchase a rental property and it comes with inherited tenants, it is very important to receive a screening packet of the tenants from the seller, i.e. all the information about the tenants that is important for us to know such as:
History of rent payments made by the tenants, checking if they have gone through an eviction process (eviction from the property) in the last 5 years, payslips and more..
We usually add a clause in the contract where the seller must provide this information within five days of signing the contract.
After all this, we must verify again if all the numbers are correct in Excel and if we wish to proceed to closing.
If all the tests have passed successfully and we have reached the closing of the property, first of all congratulations!!!! ?
And secondly, the property will not manage itself even when we have a management company, and we would like to do additional tests:
*Inspections to be performed while the property is already rented
Manage the management company -
The management company is the contact person for the tenants, it is responsible for collecting the rental money every month, it receives inquiries from the tenants if there are faults in the property and examines whether they need to be addressed, if they are not serious faults they can also usually solve/repair/renovate it themselves. It is important that we set a certain amount for the repairs where the management company can carry out the repair without our approval and from this amount onwards we will have to approve the repair and sometimes we will also want to receive quotes from external contractors that may cost us less.
It is important that the management company provides a detailed description of each repair it performs, including before and after photos, so that we understand what the problem was, what the repair was, and that the problem was indeed solved.
We trust our management company but it is important to us to always check that it works in our favor, performs the repairs properly if there are any, does not charge unreasonable amounts for them and also that the tenants remain satisfied.
Inspection of the management company - conducting a survey with the tenants once every six months
We happened to know cases of entrepreneurs who fell for less good and less reliable management companies, who would invent repairs that were made to the property even when there were no repairs and thus would charge sums for things that were not done and profit at the expense of the entrepreneurs. We are very unwilling to be in a situation where we are paying the management company for nothing, so in addition to receiving a breakdown of the things that are being done in the properties with photos of repairs before and after, we also conduct a survey with the tenants once every six months. This is a satisfaction survey that is conducted over the phone with the tenant in order to understand if he is satisfied with the property, whether he feels safe in the property, whether he receives answers to problems and malfunctions, asking him to tell about problems that have occurred in the last six months and whether or not they were answered. This gives us a good indication of the reliability of the management company and also gives us more useful information about the state of the property, the environment, etc., which can help us formulate a future strategy regarding that property.
At the end of the day, even when we have hand-picked local staff who are our people on the ground and do a great job, we always do our own testing as well to make sure our business is working as it should.
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