First Deal Learnings: Contingencies

[Cam L.]

Hey everybody,

I closed on my first investment property earlier this month and learned a ton along the way. One of the biggest learnings of the process was understanding the importance of contingencies.

If you will be buying turnkey out of state as I did, be aware that each company has slightly different policies and approaches regarding contingencies, notably the appraisal contingency. 

Some turnkey companies claim that an investment in a property that doesn't appraise still makes sense, based on the ROI in the pro forma that they present to you - watch out for this. I know that people have different viewpoints on low appraisals, but I knew that for my first deal, I wasn't comfortable getting into a property that would be underwater from day 1, especially with prices where they are now.

I walked away from the first property I had under contract with a turnkey provider because the property had a low appraisal. Since their policy was to not include an appraisal contingency, it was a bit of a process to get my earnest money back, and they were not legally obligated to do so. 

After that experience, I conducted a search for other turnkey providers that offered a wider rage of contingencies, and was able to find a provider offering appraisal, tenant placement, and financing contingency, and ended up moving forward with this company for the deal. 

Of course, contingencies are just one small part of the equation in finding the right property for you, but I would recommend that if you are starting out by buying real estate, that you clarify upfront with the seller which contingencies are covered, before you reach the stage of putting a property under contract. 

Good luck out there, and feel free to reach out if you have any questions about my experience.