Now that you are ready to buy your property, you might be asking how to start. How does the process work? The answer is it might vary depending on which country you buy the property in, which type of property you are buying and whether you buy it from a seller, developer, or at auction. Hence I can only give a general overview like this and not go into detail. Please consult an appropriate professional in the country where you are buying the property.
Firstly, you need to be sure that you are able to raise finances for your purchase or otherwise at least make a provision in the contract that in case that you can’t do so, you are able to cancel the transaction without penalty. Secondly, you will negotiate with the seller or agent on the terms and conditions of the transaction. Often, those might be standardized, but beware – don’t sign anything that might significantly disadvantage you.
Once you and your legal professional have agreed on all terms with the seller, you will sign a contract that might be called Sales Contract, Sales and Purchase Agreement, Option To Purchase, or similar. This is called exchange. After the exchange of contracts, both you and the seller are legally bound by the terms of the contract and the applicable law. Typically, you will also need to make a deposit or down payment either immediately or within a short period of time. So bring your cheque book along.
You will need to provide the contract to your lender to process and release the funds to you. If the property already exists and is not still under construction, arrange for insurance cover. Depending on the seller’s willingness, you could potentially receive the keys at this stage in order to carry out renovations.
In the contract, a date to complete the transaction will be stipulated. This is called completion and states when the property will legally be in your ownership and when final payments have to be made. There is no standard time frame between exchange and completion – this is subject to your negotiation. It could be as fast as two days; it might often be three months. If both parties agree, it could even range to several years as in the case of Lease Options. You will also receive the title deed and the keys. Now it’s yours! Congratulations.
Which Additional Costs Are There?
When you are doing your calculations, you will not only need to factor in the actual purchase price of the property, but also any additional costs, fees, and taxes that are applicable which sometimes can be rather substantial.
Those might range from agent’s commissions, legal fees, valuation fee, title transfer fee, stamp duty for potentially both buy and sell transactions, annual property tax, capital gains tax, municipal tax, ground rent, Goods and Service Tax/Value Added Tax, plus many more. It’s better to know the costs up front than be surprised by a hefty bill later.
Buying At Auction
Property auctions can offer great opportunities to buy properties cheaply, but at the same time have potential pitfalls. First, you need to be clear about who is the party that is selling the property at the auction. If the owner is the one selling, it might not be such a good deal, and at the auction, he might try to get a higher price from an unsuspecting buyer than the estate agent could fetch in the open market – not such a good deal. If, however, a bank has foreclosed a property and sells it at the auction in order to recover its loan, this might be a good deal. Beware though, that for properties bought at auction, you might not have a chance to assess their conditions and in many jurisdictions there is no regress against the seller. This means that even if the property is not the size or condition as advertised, it’s possible you might not have any chance to get a refund or be able to sue the seller in a court of law.
Other Ways To Acquire Property
Apart from buying a property direct from the seller, developer, or at auction, there are few more ways to acquire property. You can co-share with other investors if you don’t want to, or can’t afford, to buy a particular property yourself. In the case of the Lease Option strategy, you might decide during or at the end of the option validity period, to exercise your option and buy the property.
Or you might just get a call from a lawyer whom you have never heard of before that you have just inherited a property. Don’t start celebrating yet. Do your due diligence as if you wanted to buy that property. In some jurisdictions, there might be burdens against the property itself (not against the owner). If you inherit a house that is worth $50,000, but there is an outstanding tax burden of $100,000, you might want to politely decline. Furthermore, there might be inheritance tax to be paid, which in some countries can be huge! If there are no burdens and none or only little inheritance tax to be paid, you can start your celebrations and assess how this property fits into your portfolio.
The Property Apprentice Master, Jochen Siepmann, wants to share the wealth of his knowledge easily and effortlessly with you for FREE. Start your journey now to greater wealth through passive real estate income and capital appreciation with one, or all, of these FREE offers: