A mountain of research goes into buying a new property.
Whether it’s your first or your hundredth one, you should always do your homework before purchasing a new property. Between self-help articles, professional advice, and personal experience, plenty of resources are available.
Before buying a property, you need to ensure it’s a good investment. This means checking off all the legal boxes—making sure the property title and taxes are in order, inspecting the property thoroughly, and crafting a strong agreement with the buyer.
The five steps below are your legal checklist for acquiring a new rental. By checking these boxes, you ensure you’re investing your money safely and that the decision is good for your rental business.
Read Over Property Title Documents
The first thing you want to know about a property is its history.
Specifically, you should learn about its previous ownership. The “title” to a property is an abstract representation of its ownership. The property “deed” is the physical document where the title’s owner is listed.
Before you purchase a new property, you’ll want to carefully inspect the last deed for the property. Verify signatures for both the last seller and last buyer (current owner). Otherwise, you can’t know for sure that the person selling the property to you actually owns it.
To get the fullest picture of your new property, enlist the help of a title company, attorney, or lender. These individuals will help you follow the chain of ownership and verify that everything is in order.
Confirm Property Tax Receipts
Your next step is to ensure that the previous owner paid all necessary taxes on the property.
If they didn’t, a lien could be placed on the property. A lien is a claim on the property for money owed, and it prevents the title from being transferred until the lien is removed. If there is an unexpected lien on the property, this is bad news for you.
Before purchasing the property, ask to see receipts confirming that the seller paid all necessary taxes. The local government tax office should also have this information if the seller can’t provide it.
Write a Property Purchase Agreement
A property purchase agreement is a contract between you and the seller. It includes the price as well as the specifics and conditions of the transaction.
Typically, your agent will produce this document. Your only job is to reiterate any conditions you may have for the seller (maintenance, etc.) and make sure your agent outlines them clearly in the agreement.
Your agent may also ask you to sign some additional certificates related to the property ownership transfer. For example, they may provide a No Objection Certificate, Encumbrance Certificate, a Conversion Certificate, or others. These certificates are additional legal representations of the ownership transfer and shouldn’t take up too much of your time.
Perform a Physical Inspection
Next, you should perform a thorough physical inspection of the property you intend to buy.
Unless you are licensed to do this, you should always leave this step to a professional property inspector. They will know better than you what to look for and will inform you of their findings. If you have any concerns that are not satisfied by the inspector’s coverage, you can also enlist a specialty inspector for extra insurance.
Complete the Purchase
Congratulations! You’ve completed all the legal steps to acquiring the property, and it’s time to make your purchase official.
Be sure to have your agent or the seller’s agent answer any remaining questions you have, and then rest assured that you took all the necessary steps to ensure a smooth process of transferring ownership.
Growing Your Rental Business
Acquiring new properties for your rental business is an exciting prospect. If you want to expand, remember to use resources like property management system to manage your new unit(s) and track your financials over time. With the addition of your new property and the help of software tools for organization, you are on your way to successfully growing your rental business.