Five terms to consider when purchasing an investment property

Money is made and lost during purchase in real estate. A well crafted purchase agreement not only protects the buyer against foreseeable liabilities but also provides grounds for favorable terms to execute the agreement. Following are my top five terms that I ask when representing my buyers for investment property purchases. Please note that I’m not a lawyer and your particular situation warrants a further review and legal advise from counsel.

• Staged deposit: As an investor and a real estate agent, I don’t advise my clients to put all their deposit money into an agreement up front. I usually negotiate with the seller or seller’s agent to provide an initial deposit of $1,000 to $5,000 and further one or two deposits when the conditions are removed or at a set date in the future once we know we are going ahead with the agreement.  This limits your liability as a purchaser to ensure not all your deposit will be held if there’s a dispute as well you won’t miss any other opportunities that might come along that were available before when the offer was negotiated.
• Due diligence condition: I like using the condition of due diligence to allow for the buyer to review their financials with a mortgage broker in detail, conduct any inspection necessary, include the provision for entry and to be accompanied by trades, consultants or appraisers.  The condition should spell out that you can survey that property, take measurements, take pictures, videos and can bring trades and consults with you.
• If you are assuming any tenants, the due diligence should include a review of the leases by counsel to confirm the terms of the lease and rent being charged. There should also be a warranty by the seller that the rents being charged are legal and there are no outstanding disputes with the tenants as well.  I see in my practice that purchases are made without financial review and buyers find themselves with properties where the financials were estimated or worst projected rather that was is actually being charged.
• One term that I’ve used with success in agreements is that the buyers, can apply for permits before the closing, will bear all the costs for the permits and seller will cooperate with you. This is very helpful when you are looking to renovate a property and reduces the waiting time to get permits for work to be completed.  Permits can take anywhere between one to three months to be issued and having the permit process completed works in the favor of the buyer and saves on time the property remains vacant.
• Second mortgages: Second mortgages from the seller or Vendor Take Back (VTB) is cheap money. You won’t have to pay brokerage fee or lending fees and you can negotiate very good interest rates on the mortgage. Always push for a second mortgage especially if you are doing a flip so the money can be used to renovate the property.  Let the seller know that you intend on renovating the property which will increase the value of the building and secure their funds.

This is just a brief overview of some of the conditions and terms I use when helping my clients. What are some of the terms that you have used in your agreements in the past?  Please leave your responses in the comment section below.