Making smart decisions when buying real estate, or for any large purchase for that matter, requires educating oneself on the process and risks and then taking the time to evaluate, analyze and mitigate those risks. The final analysis should then be used to make the best decision possible.
When buying real estate, far too many Americans fail to take even the most basic levels of precaution by doing the proper due diligence. This is troubling because real estate is typically the largest and riskiest asset someone will ever buy. We’ve all learned this many times over in the last few years via the housing crisis, and it will continue happening until people better educate themselves on the real estate process and mitigate their risks.
So what issues should a buyer should consider? Most of the items are not complicated, however running through the important tasks when you are actually buying property is time consuming and tedious. Realize if you fail to do the hard work involved to protect yourself, and something goes wrong, you only have yourself to blame. Doing the proper due diligence to lower your risk is the responsibility of you — the homeowner making the mortgage payment.
Note: There is no risk-free real estate. Even the most diligent of buyers who do all the proper due diligence they know can lose money on some deals due to a variety of unknown, unanticipated, underestimated reasons; or simply bad luck.
The main tasks to do when purchasing a property: (there may be more depending on your situation.)
- Purchasing process – Understanding the overall purchasing process
- Cash flows and returns – Penciling out an investment property cash flows and how much you will earn on your money
- Rent vs. own – Doing a financial analysis to see if purchasing makes sense for you
- Tax benefits picture – Understanding the tax benefits of owning real estate
- Mortgage financing – Properly evaluating mortgage financing options and offers
- Homeowners associations – Reviewing the homeowners association finances, operations and any litigation situation
- Home inspection – Using the home inspection information to make better decisions
- Dwelling and liability insurance – Do you have the proper type and amount of insurance in place
- Title insurance and escrow – Did you read through your title insurance policy and all the sales and escrow documents and ask questions if you did not understand
- Non-standard investments – understanding and possibly avoiding non-standard investments like land, second homes, vacation rentals, flipping property, etc.
To help you better understand the process, join us for a free webinar on this topic at ZillowAcademy.com Monday, November 28 at 10 a.m. It will be 100 percent useful for buyers and sales professionals alike.
Experienced buyers know how and take the proper steps to protect themselves on their largest and riskiest purchase; you should too!
Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a Zillow Blogger, the author of several books including “Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate”, and loves kicking the tires of a good piece of dirt! See more at ProfessorBaron.com.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.