first time purchase

29 Replies

I need quick advice I am a first time buyer and made an offer on a four unit a little nervous and about the steps it will take the learning process is intimidating 

What are your questions?

Are the REO properties loaded with debt that is passed on to the purchaser, I did a check at the county on the property and found nothing on the record but could something pop up after I close?How would I know before hand what all the hidden things are when it comes to what it will cost me?

No debt will not pass to you. If it's a REO then the liens were wiped out at the foreclosure. Also your title company will verify things before you close to make sure there aren't any open liens.

Thank You! I have also given my earnest money before signing THEIR contract , am I in danger of losing if I don't sign the contract? I have a inspection in a couple of days can the accepted offer  change due to the report?

You can get your EMD back with your inspection clause that it sounds like you have. Yes based on the inspection you can renegotiate based on the findings.

I have an inspection scheduled for Thursday and don't have confirmation on viewing all units.  There are 4 units and 2 basement apartments,  the bank does not know about security deposits and the contact state I will be responsible for the tenants security deposit if they are claim that they paid one.  The building is fully occupied and the longest tenant is 5 years the shortest is 1 year,  how likely is it that they have a security deposit and why would I be held responsible for the deposit if it was not given to me at closing? 

linda i apologize for asking a question here but i feel it fits well.

I have the same idea of purchasing a multi family, and i was wonder how you were able to find one that alredy has tenants. Currently when i am doing my search i am only using websites just to get an idea. Were you able to ask your realtor specifically your are looking for a property that is already occupied. Again i apologize, but i am hoping you can give me an idea of what you did.

This was new to me also this is why I thought it is a good investment as far as my agent she is as green as I am and we are both learning this process, we knew nothing about the building being fully occupied 

Here in Michigan at least Fannie Mae has started to pass on the state transfer tax to the buyers. That is 7.50 for every 1,000 dollars of purchase price. Not sure about your state but you may want to ask your agent.

sounds like you haven't done the due diligence on the renter side.  I recommend requesting copies of all the leases and proof the tenants are paying not just occupying. Also You will want to collect everything you can before close - tenant communication logs past applications maintenance histories. Get a written statement saying no verbal or written agreements are in place outside the lease so tenant can't come back saying xyz said free abc. Also tell your green realtor to write up an addendumn to purchase agreement that the seller brings the security deposits plus interest to closing. If you don't collect at closing its coming out of your wallet

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Hey  Byron  ,Dan  thanks for the heads up. Derek  thank you for your quick response, because you kept me in the deal without getting so emotional and afraid, I appreciate all the help I can get THANKS 

Linda,

I am in the beginning process of making an offer on a 4 unit multi family as well. It is nerve racking. Happy to know I'm not the only one. I used the Bigger Pockets rental property calculator to see if the property would cash flow. I'm doing it with a FHA Loan. I heard I have to stay in the property for one year. Is this true? Are you doing it the same way? Do you have an idea on what closing cost will be for your property?

I am not doing a fha loan but you sound like an owner occupied deal, as far as closing cost I'm not sure of what they will be but I Googled closing costs for the Chicago area and some of the sights gave me some measurements of what I may be paying for the cost of certain things on a standard close 

Hey Linda,

Your agent needs to provide you with an estoppel from each unit. The estoppel is signed by the tenant and verifies the amount of rent they pay as well as any security deposits they have on file. Security deposits should be transferred with the building, but in the case of a REO I am not sure of the exact process. As the landlord you are responsible for the security deposits on file plus interest, so I agree with Bryon in regards to having your agent draft an addendum. You inspection contingency period protects you against losing your deposit, ask your agent how many days she specified for this process, and be aware your inspection is not complete until you have viewed the entire property. I have viewed great looking properties and when I was subsequently granted access to other units discovered units with obvious mold growth, fire damage, and squatters. Be sure to speak with the inspector to see if he will charge you for additional trips to inspect the other units, do not release your physical contingency until all units have been inspected. Also, while everyone needs a start in the industry, using a new agent (family friend, brother, cousin) for such a purchase can be very risky. Most of your questions are not very complicated, and it concerns me that if the agent could not answer/or find an answer that they may drop the ball elsewhere costing you your hard earned money.

Michael, yes you are supposed to stay in the FHA property for a minimum of 1 year. If you look on the FHA website you can find ways around this and specific exigent circumstances that allow you to move without penalty.

John, agents can see if the property is occupied on MLS, and the search can be altered to specifically target occupied multifamily properties.

Clarence Johnson, Legacy Redevelopment LLC | [email protected] | (310) 630‑9805 | CA Agent # 01942911

Hey  Clarence Thanks for your advice. ..The bank is "claiming that they have no knowledge of anything rents ,security , condition. .they know nothing about the the property, so I would have to find out the best way I can about anything concerning the property .I was reading that it is for their own protection not to know anything then they can not be held  responsible for anything 

Originally posted by @Linda M. :

Hey  Clarence Thanks for your advice. ..The bank is "claiming that they have no knowledge of anything rents ,security , condition. .they know nothing about the the property, so I would have to find out the best way I can about anything concerning the property .I was reading that it is for their own protection not to know anything then they can not be held  responsible for anything 

 The bank has an agent representing them in the transaction, the agent needs to get estoppels from the tenants.  If they do not provide original leases or estoppels nothing is stopping a tenant from telling you that their rent is $5 and they have a $4000 security deposit.  I am surprised that the lender has not asked for the estoppels or leases to protect their investment.  Definitely have your agent consult their broker or manager re this item.  Wish you the best, and please keep us updated on your progress.

Clarence Johnson, Legacy Redevelopment LLC | [email protected] | (310) 630‑9805 | CA Agent # 01942911

I will Clarence  and thank you and every one that took the time to respond, I am feeling a lot better about going forward with this process. 

Originally posted by @Linda M. :

I have an inspection scheduled for Thursday and don't have confirmation on viewing all units.  There are 4 units and 2 basement apartments,  the bank does not know about security deposits and the contact state I will be responsible for the tenants security deposit if they are claim that they paid one.  The building is fully occupied and the longest tenant is 5 years the shortest is 1 year,  how likely is it that they have a security deposit and why would I be held responsible for the deposit if it was not given to me at closing? 

 I see your profile says Chicago.  The seller, in this case the bank, claiming they do not know about security deposits on a fully occupied building, is a red flag.  A red flag because one or more of your tenants is probably familiar w/ Security deposit laws in Chicago.  Not having the security deposit accounts fully funded can cost you more than the security deposit itself if the tenant hires the right landlord chasing attorney.  Do a search on this site on Chicago Tenant Security Deposits or research the law.  Also discuss it w/ your attorney.  It's a big deal.

Some possible approaches to deal w/ due diligence on this:  

  • I assume you are still in the attorney review period.  Have the attorney request copies of the current leases along w/ evidence of payments. I know it's a bank & they always claim ignorance, but you should ask anyway.  
  • If the leases show the tenants have paid security deposits & the bank claims they have no knowledge of the deposits then insist on a credit that matches the amount of the deposits.  Bottom line- You, the landlord, will have to fund the tenant security deposit accounts unless you have evidence that there have never been any deposits or the deposits were used to repair damage to the units.  If the bank declines to give you a credit then you have a business decision to make.  Keep the deal & fund the security deposit accounts yourself or cancel the deal
  • If the payment evidence shows no payments have been made or collected by the bank then guess what. You most likely have a property composed of squatters.
  • Another option if there are no leases or everyone is month to month then consider asking your attorney to draw up agreements that that the tenants must sign.  It can become a condition for keeping or killing the deal.

Thanks Crystal I am planning to go the route of estoppel certificate  for each tenant as Clarence subjected, this way I will know from the tenants exactly what they pay and if a security deposit is in place.  Also it will aid in the financing process as well, ,Thanks for your help 

@Linda M.  Thank you for this post. I'm new to BP and to see all the assistance from the other BP members to your questions is awesome!!  This is so educational !!!  Good luck Linda. 

Great advice here.  If a bank does not/cannot disclose full information about the tenants, yet makes certain unsupported claims, that sounds very fishy to me. Like everyone else said, get full disclosure in writing. Else if a tenant says, he is owned XXX$$$ upon moving, you're out XXX$$$. 

Thanks Edward! I agree, it's really great

Linda

This might seem like a ridiculously obvious question but I will ask it anyway.

By chance does the building have a Property Manager ?

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