Real Estate Investor · Los Angeles, CA · Member since 2014 · 237 posts · 67 votes
I made a couple contacts through this forum with out of staters who I might buy properties from. They offer turnkey products, which works for me because I don't want to have to deal with contractors to rehab them. I have confidence in that they are who they say they are, but I need to protect myself.
I will need proof that the property will be mine, proof of the financial documentation, etc. What other legal documents should I ask for to cover my bases? Also, I will also need documents from property managers for all the details on our contracts. What should I ask of them?
First, you should get a Purchase & Sale Agreement once you've agreed to a price. Best to get an inspection and financing contingency (if you are getting financing). They will instruct their Title Co (assuming they specify theirs) to issue a Title Commitment and once conditions are waived you'll go to closing, transfer the funds and you'll receive a Deed to the property. Ensure you are receiving a Warranty Deed.
As for property management, they should have their standard PM agreement for you to sign. Don't sign it immediately, take your time and read this thoroughly, and if there are certain clauses that you don't agree with, ask them to revise it. If it is not stated in the PM agreement, also get in writing that they will provide for monthly financial statements. Or if they use a PM software such as Appfolio, make sure you get login access so that you can run your own reports.
First, you should get a Purchase & Sale Agreement once you've agreed to a price. Best to get an inspection and financing contingency (if you are getting financing). They will instruct their Title Co (assuming they specify theirs) to issue a Title Commitment and once conditions are waived you'll go to closing, transfer the funds and you'll receive a Deed to the property. Ensure you are receiving a Warranty Deed.
As for property management, they should have their standard PM agreement for you to sign. Don't sign it immediately, take your time and read this thoroughly, and if there are certain clauses that you don't agree with, ask them to revise it. If it is not stated in the PM agreement, also get in writing that they will provide for monthly financial statements. Or if they use a PM software such as Appfolio, make sure you get login access so that you can run your own reports.
@Chad U. This is the exact type of response I was looking for thanks! Would you advise me to get an attorney to draft the financing contingency? I will be doing this conventionally.
I don't think you'll need an attorney to draft the financing contingency. Depending on the state, it may be a the standard purchase contract that is required to use and if that's the case, the clause should be an option to check off. However, if they are using their own contract, you can just Google a financing contingency clause to insert.
Having said that, if this is your first purchase with this company, for your protection it may not be a bad idea to have an attorney on your side to review everything. May be the best $750-1000 you ever spent!
@Jerry Poon be sure to hire an independent property inspector to view the property and give you a report. The closing should occur through a title company to make sure you get a proper deed. I would also make a hookup of another BP member in the same town and beg their advice on location. You do not want a war zone regardless of price.
@Jerry Poon The only turn key I did I asked for and eventually got (they said like 10% maintenance so I factored that amount of a price increase) in maintenance fees, and I was told that everything was new so I had them guarantee no maintenance fees for a year unless tenant caused or a turn obviously. Just my 2 Cents
@Jeremy Tillotson I had no idea you could demand that. That is gold. Do you think you can shoot over a format of a letter of your request? You can PM if you want.
@Jerry Poon you ask ask for anything whether they give it will be a sign if they believe in their product. I just told them over the phone the way it was going to be. Remember he who holds the power in this, its your money invest it wisely.
You should only close through a licensed title and escrow company and get title insurance policy. In many markets, it is customary for the seller to pay for the title insurance. The title company will research the title chain, show any liens or encumbrances on the property and issue the title policy which would protect you from any claims on title. We sell turn keys in both Indianapolis and Kansas City and the buyer receives a title policy on every property. Before closing, be sure to get a copy of the title report and read it.
Since you asked about legal documents, I limited my response to that, but as part of your due diligence on the property, you should ask for the following:
1. A contractors scope of work on the rehab that was done. You should still get an inspection report and compare the inspection findings with the scope of work to see if they are consistent.
2. Copies of the tax bill
3. Copies of the leases. You want to confirm the rent
4. Rental payment history Depending on what city or state, you might not be able to get items 3 and 4 until you are under contract due to privacy laws. In that case, make approval of the leases and rental payment history a contingency in your purchase agreement.
My advice is that trust is something that is built in buissness relationships. What you see and hear from turnkey companies may not be what in fact they are. Their are a lot of investors selling properties and presenting themselves as complete turnkey companies. Be careful. My advice would be to invest the time and travel expenses to actually travel to the areas you are interested in a feel out all the people you are interested in working with. This will also give you an opportunity to see first hand the products they are offering you. You also need to do your own research on the economies, crime rates, pricing, areas, ect. You can't trust someone to do all this for you. Turnkeys are great. The trick is finding the right turnkey people to work with that will look out for your be interest. This takes time.
@Jeremy Tillotson That's an extremely refreshing point of view. I keep on going into these things thinking that they are doing me a favor, almost always forgetting that I am the buyer. I try to think that all transactions are mutually beneficial.
@Account Closed Bob, he is a turnkey seller who will present move-in ready properties at predetermined prices. It is up to me to decide whether to buy or not.
@Mike D'Arrigo Thank you so much for the comprehensive list. I will make sure to ask for each and every item you mentioned.
@Account Closed Thanks for the good advice. I will do my due diligence and not get lazy haha.
@Account Closed Bob, he is a turnkey seller who will present move-in ready properties at predetermined prices. It is up to me to decide whether to buy or not
You're not the slightest bit interested in where the "predetermined prices" came from? I would NEVER make an offer on a property that I did not KNOW the market value.
@Account Closed From the examples I have been provided with, they are slightly below market value. However, I am only using the Zillow tool to check that, which might be insufficient. Are there any tools you would recommend to check out neighborhood market values?
@Account Closed From the examples I have been provided with, they are slightly below market value. However, I am only using the Zillow tool to check that, which might be insufficient. Are there any tools you would recommend to check out neighborhood market values?
It's never wrong to ask a seller how they arrived at their asking. Then check to see if their comps are valid. I would never buy if I could not verify market value.
@Account Closed From the examples I have been provided with, they are slightly below market value. However, I am only using the Zillow tool to check that, which might be insufficient. Are there any tools you would recommend to check out neighborhood market values?
The Zillow "Zestimate" is all but worthless. For Indy, you can use www.rezamp.com to get comps - if you can't get any from a local Realtor.
An appraisal will help but not be accurate for a rental. At the end of the day, you have to be sure it fits your cash flow model.
I've heard of so many out of State investors getting taken because they didn't do their DD. You should be able to find a local that can provide some insight about the neighborhood and you should always get a 3rd party inspection, as mentioned above.
@Account Closed From the examples I have been provided with, they are slightly below market value. However, I am only using the Zillow tool to check that, which might be insufficient. Are there any tools you would recommend to check out neighborhood market values?
The Zillow "Zestimate" is all but worthless. For Indy, you can use www.rezamp.com to get comps - if you can't get any from a local Realtor.
An appraisal will help but not be accurate for a rental. At the end of the day, you have to be sure it fits your cash flow model.
I've heard of so many out of State investors getting taken because they didn't do their DD. You should be able to find a local that can provide some insight about the neighborhood and you should always get a 3rd party inspection, as mentioned above.
Right now, Rezamp is available in Phoenix, Tampa, Orlando, Houston, Dallas, Miami, Las Vegas, Wisconsin, Colorado, Jacksonville, Indianapolis and Portland. It's a nifty little program that pulls comps from the MLS, but be warned that it seems many of the places are still in beta stage, so the data is outdated. It also isn't perfected yet and arbitrarily pulls in comps from much greater than 1/2 mile and +/- large sq ft differences.
@Jerry Poon "legal investment documents" are an aid to a good and safe investment but do not put more trust in the doc than the actual deal. You have been given enough advice in order to act, Trust but verify. Persevere.