Property Investors 7 Secrets to Writing a Solid Contract

As a property investor in real estate it is not just about having access to money or finding good deals. Real Estate Contracts can make or break deals. With the mountains of paper and all manner of forms you would think that you have to be a Philadelphia lawyer to be able to understand the real estate contract, residential or commercial.

The standard contract that a real estate broker wants you to sign mainly first protects the agency and then the seller (your protection is last on the list).  As a buyer you need to protect yourself.  Understanding and changing things in the contract are ways you can turn the contract to YOUR ADVANTAGE!

Obviously, you would put different things into a contract when you are buying than when you are selling a property. Here are some ways to protect YOUR interests as the Buyer and to make the contract more profitable for you.

Read the Contract:  Ok ‘property investors’ this sounds obvious but you would not believe the number of property investors who have never read a real estate contract. They skim it over and rely on the real estate agents to properly wright it up. BAD IDEA!

You are signing away things that you would never do if you really understood the contract. Investors do make money in spite of not knowing a thing about contracts, but it’s when things come up or go wrong that you can get blindsided.  And, when it’s in the contract you signed but didn’t read or understand….you have no recourse.

Also read the contract you sign with the listing agent, if you are the seller.  Do not forget, who ever makes up the contract has the best advantage.  You need to protect yourself from the realtor, even if they are your friend.

Environmental, EPA Survey and Clearance: As the buyer, have the seller obtain an EPA survey and clearance prior to closing, at seller expense.  You can require this even if you are leasing or lease option the property.  This is most important when you are buying small commercial properties because you do not have an army of attorneys and consultant types that may have environmental issues on their lists.    If the seller gets the EPA clearance done then if you do not buy the property the seller has the documents already done for the next potential buyer.

As the Seller, If You Give Up Something, Have the Buyer Give Up Something: When you are the seller and the buyer offers a lower price then you change the terms.  If you are offering some seller financing, put in a higher interest rate and/or shorter period.  You could even find out what the buyer may have, such as a boat or RV, golf membership, radio advertising, or even services.  This sounds a little off the wall but think of it this way, you are essentially making a trade, something of value for something else of value, not just money for property. Many sellers are savvy. They’ll test you. If you don’t do this, if you don’t tit-for-tat everything, they’ll keep nibbling away till you’re too deep into it to back out. Then bight off another huge chunk at the closing table when it’s ‘too-late’ to do anything about it. Don’t get fooled by this one. It will happen, be prepared for it. (This is a little property investor negotiation ninja trick that is very effective)

Deed Restrictions: If there are deed restrictions that a former owner put on the property that you do not like, then have the seller have the restrictions taken off at his expense.  Getting the deed restrictions changed can be a problem but the seller is very motivated. If you want to add some deed restrictions then you could have them put on the deed at the time when you buy the property.  This can be very useful when friends or others what to do something on your property such as park their old trucks or equipment on your property and it is hard to say no.

Split Out the Personal Property From the Real Estate: This is frequently done in larger commercial properties. It is sometimes done in small commercial properties.   It is rarely done in residential property sales. This is a good way for the buyer to negotiate a lower price for the property.  It can make a difference when it comes to property tax.  When it comes to income tax, the depreciation of personal property has a much shorter depreciation period than buildings.

Get a Quitclaim Deed From Everyone:Anyone can give a quitclaim deed for anything to anybody.  What a Quitclaim Deed really does is to convey any and all rights the grantor may have had.  It can be used to clear up potential claims that other people may have had against the property title such as a former occupant, lessee, a previous contractor or workman or even other family members. In general, a quitclaim Deed will solve most problems in real estate title issues and is a definite property investing secret you can’t afford to forget.

Close Without a Completed Contract: This strategy is also used by large commercial property investors.  The advantage is that the parties are not bound by the contract.  There is no law that requires a completed contract to buy or sell property.  I often use this strategy in small and large transactions. Bottom line, just close the deal.

There are so many ways you can arrange a real estate contract to your advantage. Standard contracts are for people who do not know what they are doing. If you accept a Realtors contract as is, you’ve just told them you don’t know what you’re doing and that will be there cue to rake you over the coals.

When making money in real estate as a property investor, it is important to write and understand a contract that will give you the best benefit.  As a property investor you need a whole arsenal of tools to improve your position, good contract knowledge is one of them and it’s a biggie!

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