Buying Rental Property - No Realtor, What's Needed?

Question

Recently, I attended a local REIA meeting and met a fellow investor who stated he is selling one of his three properties to pursue a construction project.

The house looks great and has a tenant in place paying $1500/month until the contract  ends in October.

The owner has the property market below market value because he is not involving a realtor to sell it.  Sort of splitting the savings with the buyer.

This would be my first rental property purchase.

What services does a realtor typically perform in a transaction that doesn't require selling?  In other words, what will I need to do for my due diligence?

1.  Title search

2. Home Inspection?

3. ??

Steve K. · Answer

Sounds like simple comps then. If the place listed at $175k sells for asking price and you go under contract for $160k then you'd be getting a discount commensurate to the agent's commissions. Just make sure it's an accurate comp of course (same square footage, condition, number of beds and baths, etc.) Since you're financing you'll get the appraisal to verify your pricing too. If you're comfortable preparing the purchase and sale contract (give yourself exit clauses for financing, inspection, clean title...) working with the title company, hiring a good inspector and negotiating post inspection etc. and have good rapport with the seller, it seems like a case where it makes sense not to use agents to me. Good luck!

Tim Herman · Answer

@Patrick Owens inspect the house yourself first. Run your numbers. Get a T12. Offer and get it under contract subject to inspection and financing. The earnest money should go to a neutral 3rd party. Most contracts include them. Take to a title company or attorney depending on the state. They will do the title search. The mortgage company will require it.

Michael Ablan · Answer

@Patrick Owens -  You don't really need an agent at this point, but make sure you get a real estate specific contract that allows you to exit the deal if due diligence kills the deal.

1.) Get a home inspection done on the house

2.) Verify his income/expense reports.  Request supporting documents to prove the tenants pay and pay on time.

3.) Hire a title company to do a title and lien search (also to handle the closing)

4.) Pay a broker for a BPO on the house if you don't know how to determine it's true value yourself

The title company (or lawyer) will handle the bulk of the back end work.

Patrick Owens · Answer

@Steve K.

Thank you for the information.

There are two other houses for sale in this subdivision-  $175k and 200k.  The lower priced one is similar to the rental I am looking at.

The subdivision is 75% owners.

This house will need a new roof in 3-4 years.  The HVAC was replaced 5 years ago.  The seller lived in the house for 6 years before renting it.

I will give it a thorough walk through next week.

Patrick Owens · Answer

@Nicholas Covington

This is being financed with 20% down on a 160k price.

Nicholas Covington · Answer

@Patrick Owens are you paying cash for this deal or financing it? What's the purchase price?

As stated the main thing you will run into is purchasing a property at a value that it isn't worth.

Steve K. · Answer

@Patrick Owens the most common issue with FSBO deals is the seller often thinks their property is worth a lot more than it actually is. If you know the market intimately and are confident in the true market value of the specific properties themselves this may not affect you per se, but if there’s any question on pricing, it would benefit you to work with a local expert to establish fair market value with a CMA and also getting an appraisal done (if you’re working with a lender they will require this anyway). The seller typically pays agent’s commissions so as the buyer it’s not usually to your advantage to work without agent representation, unless the price is truly discounted by the amount the agents commissions would be, so make sure 100% that’s the case. Agents can really help grease the skids and protect the buyer from all kinds of things that can come up. Probably the biggest thing they do is negotiate the contract: not just Th e price but all the terms making sure the buyer has exit clauses and meets all the deadlines for those clauses. These include the inspection/due diligence period, the inspection objection deadline and negotiating any inspection issues, the financing clause, title work, what comes with the property i.e. fixtures etc. A good agent typically earns their commission, and as a buyer you’re not paying their commission anyway so keep that in mind.

Buying Rental Property - No Realtor, What's Needed?

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