It’s been about two months in, and I’m still working diligently to close Rental Property #3. However, as we got closer and closer to the finish line, I started to realize that I was about to soon be out of A LOT of funds (~$50,000). In other words, reality sunk in and my mind started shifting from being in a state of positive and optimistic thinking to one that was more conservative and protective. This wasn’t a bad thing, though, since it forced me to re-analyze all my decisions. Was I really doing all that was necessary to insure a smooth closing?
Before ever agreeing to sign (close), I knew that I first needed to put together a list of things that needed to be addressed. These items have all been taken care of, and they are highlighted below:
-Make a trip out to see the property. Tour property, meet the team, and take photos.
-Run the numbers using conservative estimates and make sure returns still worked (15%+ cash-on-cash).
-Hire an independent inspector to be my eyes and ears. Have inspector thoroughly go over the report with me, line item by line item.
-Put together revised addendums to make sure all inspection flags were fixed.
-Obtain fire insurance at a reasonable price.
-Go over appraisal and check for errors.
Taking care of the above is all fine and dandy, however, I forgot to take into consideration a very, very crucial element — hiring a real estate attorney!
Why You Need an Attorney!
My previous two purchases were done locally. So, not only was I familiar with the neighborhoods and surroundings, but I’m also used to California Laws. After closing two properties, I now have a good idea of what to expect at closing. What I didn’t take into consideration was the fact that I know almost absolutely NOTHING about the laws in Illinois!
The first alarm that should had gone off in my head was when I read the original contract and it asked for not only my own personal signature, but that of my real estate attorney. Being naive (and feeling a bit too reassured), I simply brushed it off and said, “ahh, who needs an attorney to close a real estate deal?” Since I didn’t use one for any of my Bay Area properties, I figured it was unnecessary.
As closing progressed, and I put more and more skin into the game (money), I started to second guess certain things. And the more research I did, the more paranoid I became. Bottom line, I have a lot to lose if this deal goes sour! I’m also pretty busy at work, and can’t honestly say that I have the time and bandwidth to read through the fine print of every single paper I sign.
Thus, I need an attorney! I need someone on my side who will do the dirty work to insure the following:
-Contract has no errors.
-Title is clean and has no liens against it.
-All buyer credits and earnest money are accounted for on the final HUD statement.
-All inspection items are addressed with evidence (photos) prior to closing.
-Any addendums that were issued are enforced.
-Lender Good Faith Estimate (GFE) is reasonable. All fees make sense and are not excessive.
In addition to those items, since I’m buying out-of-state, it’s also helpful to have a real estate attorney who you can grant power of attorney (POA) to. This way, I don’t actually have to show up to the signing, and can just leave the closing (signing 100+ pages) to my attorney. All I would have to do is wire the funds when instructed to do so.
Even though I would love to trust the seller, lender, and all other parties involved in this transaction, I must keep in mind that they don’t have my best interests at heart. Each party has their own agenda (make money), and once they take mine, you can bet they’ll leave me to fend for myself!
This is also my first time buying out-of-state. I don’t have any prior experience to draw upon. So, it’s really in my best interest to hire someone more knowledgeable than myself. A real estate attorney isn’t all that expensive either. Mine is charging me a flat fee of $600. Actually, what I should have done was hire an attorney right from the beginning, as soon as I entered into contract with the seller. By assigning an attorney earlier, I would have given him much more time to go over the contract. At this late stage of the game, even if my attorney does find something, unless it’s a MAJOR deal breaker, he really doesn’t have much leeway to get the contract revised.
Lesson learned. Next time, I’m going to hire a real estate attorney right from the start! A small fee of $600 or so is just a drop in the bucket in the grand scheme of things. I would definitely recommend any other real estate investors to do the same. You really can’t put a price on peace of mind!
With all that said, I am looking to close Rental Property #3 next week, on July 23! Looking forward to collecting rent checks soon enough.