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How to Buy an Investment Property

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Buying is the most challenging and stressful step in real estate investing, especially for beginners. Follow the steps below to make your property purchase as smooth and profitable as possible.

1. Make an Offer

The asking price is the price at which the seller has listed the property. Whether you should make an offer for a price lower than the asking price depends on a couple of factors:

Is the seller eager to sell?? Real estate investors like buying from motivated sellers who are often willing to accept offers much lower than the asking price.

Is it a buyer’s market? A buyer’s market happens when there are more properties available than people looking to buy, giving buyers the advantage when making offers.. A seller’s market favours sellers since the demand for property exceeds supply—forcing buyers to compete for homes and make offers above the asking price

What Price Should You Offer?

If you’re buying from a motivated seller or a buyer’s market, consider offering 5–10% less than the asking price. Buyers usually make an offer through a real estate agent, but you can also contact the seller directly to explain your offer, as long as you haven’t signed an exclusive agreement with a realtor. The seller will likely return with a counteroffer between the asking price and your lower offer. Once you agree on a price, you can create a purchase agreement.

2. Draft a Purchase Agreement

There are contingencies under which the purchase price can be reduced further or the agreement annulled. For instance, if the home inspection uncovers significant repair issues, the buyer often can abandon the deal.

Standard purchase agreements also have other sections. Typically, local laws require real estate agents to use the same standard agreement, making small changes when needed, like adjusting the price or closing date. Since you or the seller will likely work with an agent, start from the boilerplate and negotiate the terms until you’re happy with the finished agreement.

3. Negotiate the Terms of the Agreement

A purchase agreement, or sales contract, should include:

Timing/amount of down payment and other payments here are a few tips on negotiating the terms of the purchase agreement to create a win-win deal for you and the seller:

  • Seek seller financing: Seller financing, in which the seller lends the buyer money at below-market interest rates for a limited period, can lower the buyer’s interest payments and ensure that the seller receives the asking price.

Look for possible deals: If the seller doesn’t lower the price, ask for other benefits, like repairs, that could save you money later.

  • Negotiate repair costs: Tell the seller you’d be willing to ignore certain repairs or replacements, like new appliances if they lower the price. Some sellers prefer to offer a price cut rather than deal with the hassle of coordinating repairs or replacements.
  • Close quickly: Sellers are often in a hurry to close and move. If you commit to closing by a specific date, sellers usually agree to reduce the price.

4. Have the Property Inspected

Always get a home inspection. Inspectors are trained to find problems that most buyers might miss. They check for:

  • Apparent problems include peeling paint, cracked windows, or broken appliances.
  • Hidden problems: Issues that need special tests, like gas leaks, rusty pipes, or building code violations.

Types of Home Inspections

You’ll need to hire three types of home inspectors:

  1. Physical inspector: This person checks the overall condition of the property, looking for issues with plumbing, electrical, zoning, and the structure.
  2. Pest control inspector: Looks for pest infestations and damage caused by pests or mold.
  3. Environmental inspector: Checks for environmental problems like soil, air, and water quality.

To find inspectors, search online, in the phone book, or ask people you trust. Avoid using inspectors recommended by real estate agents to keep the inspection unbiased. Inspectors usually charge based on the property size, and you can expect to pay between $150–400 per inspection.

5. Review Existing Leases

A lease is the contract a tenant must sign to rent a property. When a property is sold, the seller usually provides the buyer with existing leases.

If any lease terms are unacceptable, investigate whether you have the right to modify the lease.
Before buying the property, be sure you understand and agree to all of the lease’s terms, such as mandatory rent increases and tenant restrictions.

6. Do a Walkthrough

As a buyer, ask for a final walkthrough before closing the deal. This gives you one last chance to check the property, either by yourself or with your real estate agent. If you find any issues, like a broken major appliance, this is your opportunity to ask for changes to the deal or decide not to go through with it.

7. Close on the Property

The closing is the final meeting where everyone signs papers, pays money and completes the sale. This usually happens with real estate agents and others like lawyers or lenders. As a buyer, you will:

Get the keys and the deed, the document that makes you the official owner of the property.
Sign the papers to buy the property officially.

Pay the seller and lender, usually with cashier’s checks.

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