Thanks to the internet, today’s buyers are more informed and more knowledgeable about local market trends than ever before. Choosing and eliminating properties is now an efficient pastime that can be done from the convenience of your home computer or mobile device. Viewing properties and making decisions are often the adrenaline rush of the process. However, there are some equally important points to consider when buying a second home or investment property.
Smart investors are informed investors!
1 – Working with Real Estate Agents
Be sure to ask for buyer representation. A buyer’s agent will represent you and your best interests throughout the entire transaction. A buyer’s agent will help you identify the best property for your needs and advise you on price. Your agent will give you a copy of the Working with Real Estate Agents disclosure and will address any questions you may have regarding agency.
Together, you and your buyer’s agent will negotiate a compensation fee via a Buyer Agency agreement and/or execute a property showing agreement prior to viewing homes or vacant land. A buyer’s agent is a valuable resource and is your boots-on-the-ground advocate!
2 – Talk to a Local Lender
Why local? The area lenders are familiar with issues unique to a vacation destination. They know the ins and outs of condo approval, second home vs. investment, qualifications, and forms that pertain to vacation rental property. Obtain a pre-approval or pre-qualification letter prior to touring homes. Knowing what you can afford and having the documentation to prove it will enable you to negotiate from a position of strength.
3 – Stay Informed of Market Conditions
Your buyer’s agent will provide you with area statistics, including active and sold comps, days on market, rental income, HOA fees, flood zones, and a host of other considerations. Knowing what you must have and what features you can live without will help you narrow your search. Prioritize your desires. Are community amenities a must-have? Is rental income important to you? What about condition, location, and view? Elevator, pool, and game room? The home you choose will be a blend of all these factors.
4 – Negotiate Your Terms
The obvious negotiating point is price, but other terms may be just as important. Market conditions may impact trends in due diligence fees, earnest money deposits, and closing dates. Based on your situation, is it a plus that the home is rented for the next twenty weeks? Is a quick closing advantageous, or would you like to delay for as long as possible? Do you need closing cost assistance? Should you offer a due diligence fee? Do the furnishings convey with the sale? Now is the time to plan and think ahead; once you are under contract, it may be too late to make changes to the agreement.
5 – Overlook Nothing
Now that you are under contract, you will have a specified time frame called the Due Diligence Period (DDP) to perform any and all inspections and to investigate details of the area and property. During the DDP, you can terminate the contract for any reason or no reason, so by all means, inspect everything, including the home, pest, septic, elevator, pool, and order a survey if you desire. Contact the rental management firm and discuss all aspects of rental homeownership. Repairs and/or seller credits, if any, must be negotiated prior to the end of the DDP.
6 – Contact an Insurance Agent
It’s never too early to contact an insurance agent to discuss adequate coverage and acceptable premiums. Find out if the changes to the National Flood Insurance Program will affect the property you plan to purchase. Ask about wind and hail deductibles, flood zones, liability, and homeowner’s insurance. Your insurance agent may ask you about the age of the roof, HVAC, hot water heater, and the type of plumbing products used in the house. Tackle insurance questions and concerns early on in the process to avoid last-minute surprises.
7 –Select a Local Attorney
8 – Transfer the Utilities
Your agent will provide you with a list of the utility vendors that service your home. You will be responsible for transferring the billing to your name.
9 –Sign Here
It is the buyer’s choice whether to be present at closing or to choose a “mail-away” closing. It is not always convenient for a buyer to drive a long distance to attend closing, especially if the home is rented. Your buyer’s agent can conduct a video walk-through with you on the day of closing or the turnover day prior to closing.
10 – Enjoy
Purchasing investment property at the beach can be stress-free if you are informed and know what to expect. In most cases, the furnishings convey by separate bill of sale so there is no moving van to coordinate. Typically, the seller receives the rental pro-rations through the day of closing so the new buyer can begin collecting rental income the day after recording the deed! Start making memories for your family!
Stay Smart. Stay informed.
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