I facilitate many local meetings of a real estate investor group. I see that many startup investors are reluctant to get properties under contract. I will address these fears:
Fear 1. I offered too much.
Most purchase agreements have a section for due diligence or an inspection period. As long as you didn’t offer $ for due diligence, your risk is that you determine your error during the inspection period, and either re-negotiate or terminate your contract.
Fear 2. Where will I find the money?
If you have decent credit you can use traditional financing or get funding from hard money lenders. If you don’t have the 20-30% down payment, you can either partner with another investor for the funds or possibly get the $ from credit cards or other funds (be careful). If you are a startup investor with no available funds you can wholesale (assign your contract to another investor for an assignment fee).
Putting down no due diligence funds is common on many investment homes. I recommend that most startup investors look at cashflowing investments – SFH or duplex thru quads, with a minimum of a 10 CAP (Net Operating Income divided by purchase cost).
For fix and flips – you might need to put down due diligence funds to make sure your offer stands out and is taken seriously. Even with fix & flips – if it takes some time to sell, then renting the home and covering your holding costs is a great alternative.
Fear 3. What if I can’t find a buyer?
Go to local REIA meetings (find them on meetup.com) and network with those who are real buyers. You can also develop a great buyers list by marketing your property under contract (with great verbiage and nice pictures with good lighting) on Craigslist. If you did your comps and calculated your rehabs correctly, your home should be priced correctly. If you are fixing and flipping, consider working with an agent who works with investors to place the home on MLS.
Fear 4. How do I handle legal paperwork?
Many real estate attorneys or title companies will provide a sales/purchase contract and assignment agreements (assuming you will close with these firms). You can also network with local investors who have these agreements. Make sure all closings/settlements are done with an attorney or title company (this varies by state – in NC we use attorneys) with a title search.
Fear 5. I want to see it before I make an offer.
Many investors want to view a property prior to making an offer. Your risk is that another investor who sees value will submit an offer and then decide under due diligence/inspection if they will proceed with the sale, terminate, or re-negotiate. Waiting to make this decision while you make sure this is ideal results in a loss of control.
Don’t get caught up in ‘analysis paralysis’.
Another fear many startup investors have revolves around rehab costs. That is another article!
Get educated on the details and financials – then make a decision!!!
Broker – Associate (NC & SC)
Real Estate Realty LLC