first deal; what steps to take after signing purchase agreement?

Question

Hello everyone,

Soon my wife and I will be signing our first purchase agreement with a closing date in July. It's a 1.5 acre lot with a mobile home on it. It will be a buy & hold. The buying condition is "as is." There is a well and two septic on the property. The owner will carry with a two year balloon.

Now, what are our next steps after signing the agreement and going to the title company? Which documents do we need from the owners? What inspections (well etc.) do we have to do? Insurance? Does anyone has a checklist?

We want to make sure that everything is in order and everything get's done right. We really appreciate your help  and advice.

Lena & Will

Jeffrey H. · Answer

You need to get an attorney involved for Seller Financed transactions, especially if you have not done this before.  These contracts can be skewed terribly in favor of the Owner so that he will foreclose on you for any little hiccup, so protect yourself right the first time and you will know what to look for on subsequent deals.

Diligence on the property needs to focus a lot on the well, the septic system, and the mobile home.  Get at least two contractors for each to give your their opinion of the operating condition of those items.  If they fail you will be out several thousand dollars, or more, and this deal will not make financial sense.  There are lots of forum posts on well, septic, and mobile home inspections - as well as books on how to inspect these.  You should have professionals do this your first time around and you learn from them - this is the cost of doing business and not getting screwed the first time around.

Insurance should go through Mobile Insurance - they are based out of Texas but they are a competitive brokerage and operate in many states, but not all.  Ask for Nancy to walk you through the process.

What's the end game for this deal?  With a buy & hold strategy and a two year balloon do you have the money to pay it off after the two years?  What happens when the owner won't finance it further - many banks won't finance a deal like this and I see this as a huge red flag when the loan comes due...  You need to have this plan locked down before you sign anything.

Jeffrey H. · Answer

I always get nervous about owner financing from someone selling for health reasons.  What happens when he / she dies before the balloon?  This can get messy.

William Hamburg · Answer

Thanks for the advice guys you are awesome! We have some amazing advisors walking us through this project and have as solid of a contract as we could ask for. We have a great deal of equity in the property and a ton of ways to generate monthly revenue and several exit plans in case the property goes south. We can get approved for financing on this and was confirmed today with a lender.After running the comps, 2 investors in our area are already asking to be involved on this project as well so I hope that's a good sign. It's super scary but at the same time we also know the area very well and we have done our due diligence as much as possible. We are ready for the next step of creating a short term, medium term and long term strategy to go through.

We had to go ahead and sign as this property and situation was quite unique where the owner HAD to sell for health reasons. Everything checks out and we got quotes on everything mentioned above and so far it's looking good. We can only expect the worse and hope for the best. Thank god the mantra we repeat to ourselves every day is "you make your money when you buy". With great equity we could just turn around and wholesale it and/or retail it. Either way, short term we can walk with 20-40k and long term 50-100k if the rezoning goes through in 12+ months.

-Will

John Duffy · Answer

@William H. as Jeffrey point out, you need to get a real estate attorney involved now to protect yourself and the seller as well.

As for the property, i would most definitely get the septics checked out by a professional. Whats going on under the ground that you cant see could cost you big time! As for the home, i would get a professional in to look at the HVAC, plumbing and electrical. Again, these are high dollar headaches down the road. I say plumbing as the older mobile homes get, it is not unusual to need to replace all of it, i speak from experience.

I agree with Jeff on the financing. I live my life as a game of "what if". In this case, what if i cannot pay this off or the new balloon payments in two years. Then what....

first deal; what steps to take after signing purchase agreement?

Most Popular Reply