Renovating For Profit (II)

The Home Investor Ten-Step Renovation Program (cont)

 "There are countless ways of achieving greatness, but any road to achieving one's maximum potential must be built on a bedrock of respect for the individual, a commitment to excellence, and a rejection of mediocrity."
Buck Rodgers

Step Four: Making An Offer To Buy

An offer is made up from:

•          The offer price;

•          The down payment or deposit;

•          The date the deal is expected to be complete (closing date);

•          Financing information (loan amount) or source of funds;

•          Contingencies (items that must be satisfactorily resolved before the deal can be considered complete).

The art of negotiating the best deal is in finding a win-win scenario where both seller and buyer believe they have made a fair deal. (This is one of the roles a Home Investor Specialist™ or Realtor® undertakes for us as a buyer or seller).

When putting together an offer we need to consider all the factors together. Remember, the highest priced offer is not always the best offer for a seller. If the seller receives multiple offers (typical on a new listing that is priced at or slightly below market value), the seller may prefer to take an offer just below asking price that has no contingencies over an offer that is made contingent upon the buyer selling another property.

Price – As a rule of thumb, an investment property that has been on the market over 60 days with no price change is typically overpriced. (Obviously there are exceptions to this, especially in higher-priced homes that take longer to sell). Before making an offer, have your Home Investor Specialist (who should be working for you as a Buyer’s Agent) put together a market price analysis for you. This will compare the house to other similar homes that have sold recently in the area and give you a good feel for the true value of the property. You can use the analysis in negotiating the price with the seller.

Down Payment – The amount of money paid with the contract to purchase (purchase and sale agreement) depends upon your sources of financing. Highly motivated sellers are more willing to accept a smaller down payment and may even be willing to finance some of the deal themselves. (The classic “no money down” deals advertised on TV are still possible with highly motivated sellers and flexible financing, but most sellers are looking to cash-out of their property, especially if they want to reinvest their capital in another real-estate property through a 1031 Exchange).

Closing Date – One way to make your offer more attractive is to find out if the seller wants to close early or late. Accommodating their schedule can make your offer more attractive.

Financing – If you are using traditional mortgage lenders to finance your investment, be sure to have a loan pre-approval in writing and ready to include in your offer. If you are looking for the seller to finance all or part of the investment on a short-term basis, try to find out if the seller is willing to consider this before presenting your offer. Sometimes sellers with no mortgage on a property are willing to finance your purchase if it means a steady stream of income over a relatively short period (five or ten years). If you are looking to resell the property in a couple of years, you should budget to pay off the seller as part of your project budget.

Contingencies – These are clauses you add into your offer to allow you time to verify the strength of your investment before finally committing to the purchase. Typical contingencies cover:

•Pest inspections

•Septic Inspections

•Water testing

•Radon testing

•Home Inspections

•Loan approval / Property Appraisal

•Lead Paint Inspection

•Hazardous Materials Inspection

While contingencies protect you from unforeseen problems, they are also a deterrent for a seller since the purchase is not finalized until all contingencies have been removed. Offers with fewer contingencies are always more attractive to a seller.

Step Five: The Inspection & Adjustments

Go over the inspection report and estimate the cost of fixing all the defects identified in the report. You now need to decide if the cost of fixing these items has already been factored into the offer price or if the offer price needs to be adjusted to reflect newly discovered problems.

If your budget doesn’t work at the offer price, be prepared to walk away from the deal if the seller is not willing to reduce the price. There will always be another property for you to buy. Your Home Investor Specialist understands this and will probably have already lined up more properties for you to consider.

Step Six: Plan & Budget

Once you have agreed to purchase the property it is time to convert the preliminary plans and budget into more detailed project plans.

Identify all the key stages in your project and begin to estimate the timeline for completion. Don’t forget to allow time for permits and inspections along the way.

If you are using a general contractor, begin to get a detailed project plan established with your contractor. If you are planning on sub-contracting stages of the project and taking on the role of project manager, be sure to agree your timeline and plans with all your subcontractors so that they understand what is expected of them and they can give you suggestions that may help your project go more smoothly.

If you plan on doing most of the work yourself, a project plan and budget will help you to stay focused on the most important tasks so that your project does not languish.