Ten common sense tips for purchasing real estate

I´ve written this article as a guideline to those considering a purchase in Florida. While property prices are at record lows and incredible bargains are available, it is just as easy to make the wrong purchase decision now as it was during the boom years.

Many of these tips are universal and can be applied to any property market. Most professional readers would adhere to this unconsciously, but it´s always useful to outline in an easy to digest format.  

Here are my top ten tips: 

1. Do your homework on the neighbourhood

You can look up the average household income and crime statistics for any neighbourhood in a matter of minutes and it could save a small fortune. Imagine that you´ve a choice between one property selling for $50,000 in an area with an average household income of $25,000 and another property selling for $60,000 in an area with an average household income of $40,000. You´d be much better off paying $10,000 extra for a better rental and resale market.

2. Visit the property yourself, or have someone you trust do so

An advert promoting a $30,000 property within 12 minutes of Disney might sound like a no brainer. The thing about Orlando is that nearly every neighbourhood, good and bad, is within a 10-20 minute drive of hotspots like Disney, Universal Studios, Sea World and Restaurant Row. 

Like most big cities, great neighborhoods with huge mansions can be less than a mile away from horrible ones with rows of boarded up properties. You need a lot more than Google maps to determine if the location is good or not.

3. Check out the rent roll

If you are buying a pre tenanted property with the aim of earning a regular income, then ask to see an up-to-date copy of the rent roll. This provides invaluable information such as how many units are vacant, what each unit is renting for, when each lease started and when each lease will expire. 

4. Foreclosures: Make sure the number is manageable

The more stable a community it is, the better for all home owners. If you are thinking of buying a unit in a community of 300 homes and 80 of them are in foreclosure, you could be in for a rocky ride. These properties will probably be sold for much less than what you´re paying for yours and rented out for less than you can afford to rent yours out for. Try and buy somewhere where less than 10% are in foreclosure. 

5. HOA Reserves: Make sure they are adequate

In Florida, all condo home owners have to pay HOA fees which usually range from $200-$300 per month. Your Home Ownership Association (HOA) is responsible for looking after the common areas and facilities of the whole community and insuring the common areas and exterior structures of all buildings (i.e. walls & roofs). 

Ask for a copy of the HOA accounts before purchasing a unit. This should tell you how many people are paying their HOA fees and what reserves they have in place. If either of these is inadequate, you could be in big trouble as your fees will be increased dramatically if a) the clubhouse roof needs to be replaced and they have insufficient reserves or b) not enough people are paying their fees to maintain the resort on a monthly basis. 

6. Budget for repairs and vacancy periods

All properties, from the very top to the very bottom of the food chain are going to have vacancy periods and repairs that will eat into your income stream. Budget at least one month’s rental income each year being spent on these issues. Older properties, cheaper properties and properties in low income neighborhoods will have correspondingly higher vacancy and repair costs. 

7. Closing and running costs: Make sure you know what they are

For properties priced in the $50,000 - $150,000 range, you should budget approx $2000-$2500 to cover basic legal and title insurance. Running costs include HOA, real estate taxes, property management and home insurance (optional but highly recommended). 

8. Get a decent management company and be aware of all its fees

A professional management company that manages your property and your tenants well over a number of years is worth its weight in gold. In almost every scenario, it does not pay to appoint a small inefficient company who undercuts bigger and larger competitors with cheap commissions. 

The better your management company is at doing his/her job, the happier the tenant will be and longer he/she will stay. It is common practise for management companies to charge additional fees for placing a new tenant or renewing the lease of an existing tenant, so you should make yourself aware of these and input them into your calculations. 

9. Get a referral from the selling agent

If your agent has been in business for a few years, he/she should be happy to put you in touch with a couple of satisfied clients who can verify that they are happy with the service received.  

10. File your tax returns

This is especially for overseas buyers purchasing US property: All owners of USA based property must file tax returns in the USA every year, even if the property is not earning any income. Overseas residents will need to get a tax number (ITIN) and a non resident social security number. This is a very simple process and filing returns every year shouldn´t cost more than a couple of hundred dollars. There are plenty of specialist companies who can prepare and submit this paperwork on your behalf.

Kind Regards

Colin