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8 Less Obvious Documents You Must Obtain When Buying Real Estate
At the point of agreeing to a purchase price, the standard document that most property buyers expect to examine even if they have never bought an investment property before is the option to purchase. But don’t forget or ignore the fact that investment real estating works on a different level compared to just buying a home. This means that there are other areas of information and documentary paperwork you have to review before making any purchase.
The request for these documents should be implicitly understood by the seller. And to avoid ending with a dud, you need them to verify the authenticity of the seller’s claims with these documents. The statements should reveal more intimate details on how business operations have been going on in the last 12 month at least. This is so that you can identify consistencies, extraordinary gains, or seasonal factors, etc.
Verified income and expenses reports
If you are concluding a big deal worth considerable cash flow or even buying a company, the best scenario is that the reports are verified by accounting auditors. But that usually do not exist with smaller businesses as these reports are tabulated by internal or outsourced accountants and endorsed by the owner. These statements will show how well rental collections are managed, utility bills you can expect to pay, the costs of maintenance and engaging third party service providers, and more importantly, where improvements can be made to enhance you bottom line.
Verified rental roll
This is just a fancy name used to describe the list of all the details on rental units including tenant details. It should contain information regarding tenant details, move-in date, lease expiry date, rental charges, amount of security deposit, special rental terms and agreements, etc. As each tenant is unique, some of them might have previous agreements with the landlord on terms that are not in the normal constraints of a standard tenancy agreement. The seller should disclose everything here and sign off that no additional concessions or verbal agreements have been made with any party that have not been disclosed here in this document.
Folders of all third party contracts and service agreements
You will surely be engaging third party contractors or sub-contractors for one reason or another. They could be for the management company, painters, carpenters, plumbers, pest control services, etc. Every contract that should be available so that you are aware of your obligations and terms of services.
Folders for all tenants
If you are running a proper business operation, you should be keeping a folder containing all documents regarding a tenant or unit. And all these folders should be stored systematically for easy retrieval. As the new owner of the property, all these documentation should be handed over to you. If for some reason these cannot be handed over, full copies of them must be provided to you so that you can run the operations smoothly. The folders should contain information like maintenance works, notices, correspondence, collection receipts, lease contracts, and basically everything relating to a particular unit or tenant.
Copies of government related documents
Depending on what kind of operation you are running, there can be various types of permits and licenses for you to conduct your business. For example, special licenses have to be granted to operate a hotel, buildings under conservation will require to undergo special care like retrofitting, special zoning permits could be needed when your operations spill over to areas outside your legal compound which belongs to the public, etc. Running into trouble with the authorities can be a huge headache. So you surely want all documents relating to the authorities to be available and filed properly under your care.
Details on security deposits
Security deposits can be very tricky items even for a seasoned landlord. Because morally speaking, one would feel that it is justified to retrieve any amount of money that is owed by the tenant from the security deposit. But legally, there are many parameters on what can and cannot be done with it. To complicate matters even more, local laws, different states and countries will have their own rules and regulations on how security deposits should be managed. In certain states, sellers are required to refund security deposits to tenants when selling the property to new owners. It can then be a huge challenge to collect them again from your tenants. You might want to engage a good escrow service to sort this out.
List of all personal property that comes with the purchase
This is an area where disputes are often found between buyers and sellers. It arises when sellers want to take something with them while the buyer insists that it is part of the transaction. To avoid these problems, a comprehensive list of personal property included in the deal should be drawn up. You might be wishing to leave this tern vague so that the seller has the freedom to leave any valuables behind. But that can work against you when seller leave all kinds of rubbish within the compounds. It is better to just be firm and specific with what is and what is not included. If there is something you want and the seller has agreed to it, remember to have it in writing.
Insurance is a double-edged sword. On the one end, everyone curses about the amount of premium they have to pay just for a peace of mind. On the other end, policy owners will get on their knees and thank the heavens should something happen and there is insurance to protect them financially. For most business owners, proper insurance coverage is essential. At closing, you will find that some formalities cannot be concluded until proper related insurance documents are presented showing proper coverage limits. Even though the seller’s policies will not be able to protect you, it does not hurt to request a copy. You will want it so that you can do your research on how to obtain adequate coverage and the premiums you could be looking at. It can also be a bargaining chip in some way.