Flow of Real Estate Investment
Here are important steps needed for Real Estate Investment.
Set your goal & strategy
Real Estate Investment is one of the ways to make your future better.
Imagine vividly how you want to be in the future if
A: Early retirement with unearned income from RE investment
B: Stable income on top of pension plan
C: Higher return than saving with the bank
D: Use as monthly allowance
E: Make big profit by buying and reselling properties
Is applying the same strategy to achieve all Plan A to E correct?
Absolutely not. Each plan needs own unique strategy to make it happen.
For a person with Plan D, buying a single unit room could be also an option.
Plan E may need to start looking for a imperfect property from a sale by private contract or by auction.
As seen from above, you need to decide your goals first.
Your goals may change according to your investment budget, working status such as annual income or employer.
If you are not sure about your investment strategy, it is a good idea to ask senior RE investors or professionals to map it out together.
Once you set your strategy, now it’s time to look for an actual real estate to invest in.
There are many ways to find the property.
You can search through real estate companies. internet or newspaper. Visiting a real estate company often is a good way to increase a chance to discover secret properties that others do not know about.
Each company or website has its own characteristics. Some are specified in residential properties for living and others are good at finding properties for investment. Find one that is best for your own purpose. Also it is a good idea to tell your criteria so it would be easier for companies to find what you are looking for.
Inquiring Details & Investigate on Sight
When you find a property that you are curious about, contact the company and ask for more information.
Analyze it to see if it’s worth your money to invest. This analysis requires your investment knowledge. Think through from budgeting, rental demands, rental market, and also exit plan.
If all of these match your criteria, the next step is visiting the property. Make sure of any fixation needed in the fire and the property location. You should also check what’s around the building such as neighborhood and competing properties. Your intuition is also important for this kind of judgement.
Letter of Intent
Once you decide on a property, you will need to turn in a letter of intent (LOI) to the seller through a real estate agent. This document just shows that a buyer has intention to purchase a property with given conditions. It has no legal bonding whatsoever. This is needed for further negotiation. With this LOI, a real estate company negotiate with the seller.
An example of a LOI is available in the format list.
If you need to use a bank loan to purchase a real estate, you will apply for a loan from a finical institution.
There are two ways to this. One is that a buyer go to a bank and directly apply on his/her own. The other way is applying though a real estate company.
In many cases, real estate agents have good relationship with banks, so it might be better to ask them to take care of the loan application.
Once you pass the loan approval process, you will need to make a loan agreement with the financial institution.
Important Description & Sales Contract
Before you as a buyer sign a sales contract, a registered real estate agent with a license has to explain important matters about the property you are about to purchase. This is called, “Important Description” and it requires your signature at the end of the explanation to show that you understand and agree. You must pay attention to it because it could be such an important intel of whether you actually sign the contract or not.
Right after Important Description, by signing the Sales Contract, the actual contract will be made.
In the contract, agreed conditions are written and the document is distributed to both the buyer and the seller. After confirmation, both party sign and stamp on the contract and the buyer pays the earnest money (deposit) to the seller to close the deal.
Important description and sales contract contain lots of legal terms that you might not be familiar with so it is ideal to ask the agent for those documents beforehand to read them through.
If there is anything that you are not sure about, you need to contact your agent and ask questions.
Settlement & Ownership Transfer
After signing, by paying the rest to the seller you will finally get the ownership over the property. Typically the seller, the buyer, the real estate agent and a judicial scrivener join the settlement.
It is common to use bank transfer to make a payment but sometimes it’s done with a check or cash.
During this event, a buyer pays miscellaneous fees such as registration fee and brokerage fee.
All the keys including the master keys are handed from the seller to the buyer. If you are taking over the lease contract, you receive the original copies.
When this is all finished, you are now a taking a big step as a new landlord.
Managing & Running
Real Estate Investment is not just a money investment but it’s a type of business. An owner has all the power and authority and he/she has to work hard to obtain profit.
Major jobs a landlord need to do are getting new tenants, collecting rent, and keeping the property clean.
It seems to much for one person to do all that so many investors hire a property management company to take care of all. Finding a trustworthy company is a key.
Selling Properties (Exit Plan)
Real Estate Investment is a long term investment but you need to think about what to do with your properties at the end. This is called “Exit Plan”. There are many ways to think about this.
Selling the properties is of course one way however there are options such as rebuilding or selling the land.
No one can predict what’s going to happen in the future but it is important to think about the exit plan at the purchase stage.