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How to Invest in Turnkey Properties the Right Way - Step 4 - The Closing Process

Monday, November 21

Today we will continue our series on how to invest in turnkey properties the right way.  To date, we've covered the following 3 steps:

Step 1 - Selecting the Right Team

Step 2 - Set Up Your Business Structure

Step 3 - Step 3 Select the Right Property

Today, we will discuss Step 4 - The Closing Process.

Purchasing property not overly complicated, but there is a process to it.  There are several things that you should check every time you purchase a property, and we have broken them down into what you should do, and when you should do it.

Things to do Immediately After Coming to Agreement to Purchase

Send The Purchase Agreement, EMD and Proof of Funds to the Title Company

First things first!  Every offer you have to purchase a property needs to be in writing, and this is usually in the form of a purchase agreement.  The purchase agreement will list the following details:

• The name of the buyer and seller
• Legal description of the property
• Agreed to purchase price
• Amount of deposit
• Timing for when the purchase shall be completed by
• All agreements made between buyer and seller

It is very important that all aspects of the purchase agreement be in writing because the purchase agreement is the document that will guide the closing process, and it is the legal document that the title company will abide by to complete the transaction.

Now, once the purchase agreement is signed by both the buyer and seller, it needs to be submitted to the title company.  Along with the purchase agreement, the buyer will also be required to submit their Earnest Money Deposit (EMD) and provide proof of funds to close the deal.  Proof of funds should be in the form of a bank statement or a loan commitment letter.

The title company is a third-party that will act as a referee during the closing process.  They will abide by the purchase agreement 100%.  They hold the EMD and any other funds in escrow, and they will not release the funds unless directed appropriately by the purchase agreement.  Therefore, the title company protects both the buyer and seller during the process.  You should NEVER purchase a property without having a title company involved.

Request The Title Search and Title Insurance

Once the purchase agreement is sent to the title company, you (or the seller) should request that the title company conduct a title search.  A title search will discover any and all liens on the property.  Since you will be purchasing the property, these liens will become your responsibility, so you want to make sure there aren't any when you take ownership of the property.  One of the biggest mistakes we see investors make is that they take title to a property without conducting a title search.  We do not recommend our clients ever purchase a property with conducting a title search.

Now, once you have the title search completed, and there are no issues with the title you're safe right...

Title companies can and do make mistakes which is why there is title insurance.  You should always get title insurance when purchasing a property because it will protect you from being liable for any mistakes made by the title company conducting the title search.  Furthermore, in the US it is customary for the seller to pay for this insurance, so it should not cost you anything to get this protection.

Set Your Closing Date

Typically, you will want to set a tentative closing date immediately when the purchase agreement is submitted.  Most times this is somewhat flexible and you may be able to close on the property sooner or later as long as the change in time period is agreeable by both the buyer and seller.

Things to Do Within 7-10 Days of Submitting the Purchase Agreement

Conduct Your Inspections

Any inspections you will be conducting on the property should be completed during the period of time specified on the purchase agreement.  Typically this happens within the first 7-10 days after the purchase agreement is submitted.  You'll want to make sure to coordinate with your inspectors to make sure the inspections are completed within the time specified in the purchase agreement.

Setup Your Property Insurance

You are purchasing an asset, and as such, it is wise to insure your asset from damage or loss.  If you are financing the property, you will be mandated by the bank to provide property insurance to cover the cost of the loan if the property is damaged.  You will want to get your property insurance squared away at least a week before the closing date.

Interview Property Management Companies

If you are investing from out of the area, you will likely need to hire a property manager.  Within the first 7-10 days (or even before submitting your purchase agreement) you should interview the property managers you will be considering.  At Michigan Turnkey we will recommend one or more property managers that we have worked with in the past, and you should discuss with them how they will manage your property.

You will want to formally hire your property management company about a week before you close.  To do this, you will setup a management agreement with the management company which spells out all the responsibilities for the property management company along with the fees that they charge.  It is very important to get this in writing.

Things to Do 1 Week Before Closing

Review the Settlement Statement and Closing Documents

About a week before closing, the title company will provide you with the closing documents.  The most important document in this package is typically the settlement statement.  The settlement statement (sometimes called the HUD statement) is the document that provides the accounting for the sale of the property.  This document is going to list the purchase price, closing costs, tax prorations, rent credits, commissions, and any other accounting needed to complete the sale.  You should look over the settlement statement and the rest of the closing package very carefully.  Our experience has been that the 1st draft of the settlement statement contains errors more times than not.  If you see something that doesn't look correct you need to question it with the title company.

Arrange For Your Funding to Be Sent to the Title Company

Once you have reviewed and agree with the settlement statement, you will need to arrange for your funding to be transferred to the title company.  This is typically done by wire transfer or by certified check.  The title company will hold the money in escrow and distribute the monies according to the settlement statement after all of the closing documents have been signed.

Transfer Utilities

About a week before closing you should schedule to have all the utilities (gas, water, electric) transferred into you or your company's name.  If the property is rented, you may not have to transfer any utilities, but you should consult with your property management company to determine what utilities need to be transferred.

Things to Do At Closing

Sign The Closing Documents

On closing day, everything should be fairly anti-climactic.  The title company will have prepared all of the closing documents for you.  You'll want to read each of the documents carefully sign and return all of the closing documents.  If there are any mistakes or omissions you should consult with the title company.

Things to Do After the Closing

File Your Property Transfer Affidavit

It may be different in other states, but in Michigan you are required to file a property transfer affidavit within 45 days of purchasing a property.  This is the buyer's responsibility to complete, but it is something your property manager will be able to file on your behalf.  If you purchase from Michigan Turnkey we will offer to do this on your behalf as well.

Start Collecting Checks

Of course this is the whole reason you're investing in turnkey properties to begin with right?  If you have purchased a turnkey property you should begin collecting rent the first month after your purchase.  Enjoy!

Next time we will wrap up our discussion on Investing in Turnkey Properties the Right Way as we discuss Step 5 - Property Management.

Stay tuned...

This blog was originally published on MichiganTurnkeyTV.com

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