The first real estate deal is exciting but that excitement is also a hazard. The rush first deal excitement creates, creates situations that cost newbies money and leave a very bad taste for real estate. To avoid that, here are five things newbies should do to get through the first deal fog of excitement.
- Use A Written Contract – Do not do your first deal on a handshake. In fact, do not make any real estate deal on a handshake. It is fine to negotiate through to a handshake, but be sure to finalize everything in writing. If you do not, your deal and possibly some of your money may slip away. Remember that without a written contract, there is no proof of your interest in the property. There is nothing to stop the seller from shopping your deal around for a better offer. It may be your word against theirs if some earnest money disappears and things can otherwise get very messy very quick. Always use a basic written contract.
- Never Give The Seller The Earnest Money Deposit – Never, ever give the seller the earnest money deposit on a property. Instead your best is to use a qualified third party such as a mutually agreed upon closing attorney as an escrow agent to hold all of these sorts of funds. Doing so will help to ensure that your money is returned to you if the deal is never finalized, which happens more often that you think.
- Do Not Make Any Repairs Before You Close – Making a repair or two may seem like a good idea. After all, you are just trying to not spend even more money on more repairs later on. While this may sound good I do not advise it. You just never know if the deal will truly close. If it does not, you will likely have lost those funds. I have seen this happen. Do not make any repairs unless your lender requires it in order for you to get the loan. Even then, it still worries me.
- Do Not Pay For Anything Until The Deal Is Finalized – There really is no reason to pay for anything prior to closing. This includes back taxes, liens and any other issue that may be associated with the property. Every issue I have ever encountered was able to be handled at the closing table by my closing attorney. Putting you money into a property before it closes is like throwing it in the toilet and not flushing. You might be able to get it out, but it will not be fun. Plus it is just too easy to slip, hit the handle and flush it away.
- Do Not Close Until You Get A Title Search – A title search is perhaps the most important thing you can do before purchasing a property. If you only do one thing, do a title search. Imagine buying a property and fixing it up only to have a long, lost relative of the seller show up to claim ownership. It does happen and it can happen to you. Take the time and do it.
Get Through To Do It Again
Newbies often do not realize just how much they do not know. They have also not been in the business long enough to develop that thick skin us more experienced investors have. They are too trusting and thus easily taken advantage of, especially in the fog of excitement over their first deal.
By following the five items I have outlined above, the newbie real estate investor can go a long way towards protecting themselves and their hard earned funds. Be careful and you will be successful. If you get lost in the fog and lose money, you may never come out to try another deal again.
