Buying real estate is about more than just finding a place to call home. Investing in real estate has become increasingly popular over the last fifty years and has become a common investment vehicle. Although the real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds.
Though a home is one of the largest investments the average investor will purchase, there are other types of real estate investments worth investing in. The most common type is income-producing real estate. Large income-producing real estate properties are commonly purchased by high net-worth individuals and institutions, such as life insurance companies, real estate investment trusts (REITs) and pension funds.
Income-producing investment properties are also purchased by individual investors in the form of smaller apartment buildings, duplexes or even a single family homes or condominiums that are rented out to tenants.
Optima Properties Focuses on an Individual Investor’s Specific Objectives by:
- Understanding client risk/return parameters
- Developing strategies to achieve client objectives
- Understanding of the local market
- Assisting in locating and purchasing investment properties
- Advising on local professionals to assist in the property’s management, such as:
Investors should be aware of the due diligence process they must consider implementing when purchasing property, whether for investment or otherwise.
Many cash buyers forego much of the due diligence process because the tasks are not mandatory but recommended. Never-the-less, you should be aware of the various items to take into consideration when purchasing real estate, and additional items to consider as an investment property.
Title insurance is usually a part of the closing package and not necessarily considered due diligence; however, in a cash transaction, it is an optional purchase for the buyer and one highly recommended by us and attorneys alike. Title insurance protects the buyer from certain claims against title during his/her ownership.
A full home inspection entails a licensed inspector physically visiting the property and inspecting the plumbing, electrical, windows, appliances, air conditioning, roof, carpentry and other aspects of the home and followed up with a written report along with an estimate of repair costs, if any. The fee for a home inspection ranges from $300 and up depending on the number of units and size of the structure.
Water & Electric
In many properties purchased by investors, the power and water may not be on making it more difficult for an inspector to put together a thorough report. When scheduling the inspection, Optima Properties attempts to get the seller to “turn on” power and water for the purpose of an inspection. Often, the utility companies will turn on utilities for the day to conduct inspections.
The same licensed home inspector can also inspect the roof. The age of the roof as well as condition, life expectancy and leaks will be reported to the buyer.
Homeowners insurance is relatively inexpensive for occupied property, including rental property; however, before the insurer will “bind” a policy, (based on the age of the property) they often require what’s called a 4-point inspection, costing about $250. This is similar to a home inspection and may be done along with the home inspection when you know in advance to request it – it may also cost less to order the two inspections together by the same company.
Liability insurance is often included in the homeowner’s policy but the buyer should make sure rather than assume. If it’s not included, then you have the option to purchase a separate policy for liability coverage. There are policies such as liability umbrella policies that will give you annual liability coverage for all properties you own. This is cost-effective and often necessary when you own property in a corporate name.
Wind & Flood insurance are usually add-ons to current policies called Riders. In South Florida, it’s advisable to obtain wind and flood protection.
A survey can run as much as $400 and is done by a licensed surveyor. A survey is basically a drawing of your property’s lot line as viewed from above. It shows where the lot lines lie as well as where all of the property’s structures lie within the property’s boundaries. One of the purposes of a survey is to ensure your structures aren’t built onto the adjacent property and vice versa, as well as to reflect the existence of any easements or encroachments. When the seller has had a survey completed in the past, it’s a great idea to call the same company and request and “update” to the survey. It’s faster to obtain and usually costs less.
Various cities and municipalities require annual rental licenses which can run approximately $30 to $50 per unit, per year and require a city inspector’s visit to the unit for inspection purposes. This is renewed annually so long as you have a unit occupied by a renter.
Section 8 & other subsidized rental programs – In addition to the city’s inspection, these agencies employ their own inspectors to conduct annual inspections at no charge for the purpose of program lease renewals.
US Tax ID Number
For those investors located abroad, speak with your local and U.S. tax advisor about obtaining your U.S. tax identification number, among other items to set up for purchasing and profiting best with U.S. real estate.
It’s always advisable to obtain the services of a dedicated real estate transaction attorney to review your transaction agreements as well as closing documents prior to closing your transaction.
Optima Properties will advise, coordinate, and direct you through the entire Due Diligence process.