Buyer's Checklist
A Buyer’s Checklist – Get Off to the Right Start
Buying an investment property can be hugely rewarding, but with the prospect of gain comes risk. A mistake made at any stage of the buying process has the potential to be a very expensive one. Nothing is worth the risk of losing any value in your investment or being stuck with an untentantable property.
Fortunately the most common pitfalls are easy to avoid. Here’s a list of the basic, essential steps you should take before handing over your hard-earned cash. They’re reasonably simple but you’d be amazed how many people shoot themselves in the foot before they’ve even begun trying to earn a return on their investment.
• Know your limits
When making an investment in anything you need to know how much you have to invest. A house is no different. Don’t fall victim to the assumption that you can borrow as much money as you want. Find out beforehand what your limit is. You wouldn’t believe how many people I’ve come across who jump straight in, make an offer on a property, only to find they can’t borrow enough from the bank and have to source the balance from wherever they can. Pre-approved finance is both a reality check and piece of mind – it determines what size house you can consider and what suburbs you can look in, while also giving you the confidence to make an offer when you do find the perfect place.
• Put the word out
Warn your accountant and lawyer that you are looking to buy a property so they are aware that they need to put aside some time in the near future. If you don’t have either or both already, now is a good time to get one! Both will be very important in the coming months as you search for the perfect deal.
• Make an offer
A sale and purchase agreement is used to make an offer. Before your pen gets anywhere near the dotted line, consult your lawyer, they are, after all, the experts so let them check your risk. Knowing from the start that you understand what you’re signing up for and that you have filled it all in correctly is the only way to move on with the buying process.
• Make it official … with conditions
Once the offer has been accepted by both parties it’s time to sign the sale and purchase agreement, taking care to include conditions. The most common are the LIM report, a builder’s inspection and finance, however another suggestion is to include due diligence. This is more for your protection as it provides an out in case you change your mind. Otherwise if the LIM, builder’s report and finance are all approved the sale may have to proceed. Due diligence concerns can be as insignificant as the paint colour, but they can be the deal-breaker. Also consider including an arrangement for access to the property between going unconditional and settling. This gives you the opportunity to get started straight away on any repairs you want to do in order to ready it for tenants, or at the very least it allows you to show prospective tenants around.
• Bring in the experts
There are rules of thumb about property in general, but relying on them could be a very expensive mistake. At least employ the services of a building inspector, plus a valuer and surveyor if need be, to make sure you won’t be facing any nasty surprises – there is no disadvantage to giving yourself piece of mind before handing over your cash.
• Out on a LIM
A Land Information Memorandum is issued by the council of the area where your new property is situated and gives you all the information that council holds about the property. This can include whether there are any rates owed, potential erosion, subsidence, slippage, flooding or any contamination, plus it can tell you whether the right consents have been obtained … and that’s just the start. If something untoward comes up, you can get the owner to fix it prior to purchase.
• Get the right legal structure set up
You need to decide who is going to own the property before you finalise the sale. There are more options than you may think. Do you want to own it as a sole trader, as part of a partnership, in a company, in a trust or as an LTC?
• Check everything with a lawyer
I can’t emphasise this enough. Your lawyer is your failsafe; everything should go past them. If they’re worth their salt, your lawyer will want to do the best thing by you. Otherwise, anything that goes wrong in this process could turn out to be very expensive, not to mention stressful.
• Take the plunge
If everything so far has checked out, there’s nothing else to do but go unconditional and get that deposit cheque to the Real Estate Agent.
• Get someone else to do the legwork
I always recommend employing a property manager for any investment property. Believe me looking after tenants is not as easy as it seems. So many things can go wrong, not only with the property itself - I’ve had calls from tenants at 2am asking me to fix things – but more importantly, arrears with tenants’ payments are no fun to deal with. When it comes down to it, forking out $1200 a year is worth every penny – and it leaves you free to enjoy the gains of your fantastic investment choice!
• Get in there
Now the deal’s signed and sealed you can take advantage of those arrangements you made earlier to have access to the property. Get any repairs done as soon as possible so it’s ready to be viewed by potential tenants. This way you can get paying tenants in there as soon as you settle – better that they pay your mortgage for you.
• Get it covered
It only takes a few minutes for something drastic and unforeseen to happen to your brand new investment. So don’t leave organising insurance until the last minute. Make sure it’s sorted as soon as the deal’s gone unconditional.
• Show them the money
Now it’s time to settle and hand over the rest of the cash.
• Purchase complete – It’s all yours!