How do you close on an Off Market deal? Step-by-Step process

Question

Please guide me through the process of closing on an off-market deal. The owner is interested in selling. Now what? How do I make an offer? What documents do I need? Anything I should know? Does and Don'ts?

Thank you

Marlen Weber · Answer

@Roy N. Your reply is of great help. Thank you for the information and for sharing your knowledge with us.

Roy N. · Answer

@Daniel Lozowy

The mechanics of Closing a real estate transaction will be the same regardless of whether the property was listed with a real estate agent or the transaction private.

There will be steps prior to Close that will differ:

• In a private transaction you will need to provide (or have your counsel provide) and Agreement of Purchase and Sale; 
• There will not be a real estate agent to hand-hold you through the steps (negotiating, diligence, etc).  IMHO most residential real estate agents are of little help in these matters.  If you are purchasing commercial property, then an experienced commercial agent/broker typically will be of value to you.
• The transaction will not be covered by a real estate agents insurance.  Once again, in IMHO, this is of little value but does underscore the importance of thorough diligence on your part.
•

Where you have indicated you are dealing with a 6-12 unit building, the transaction and financing will be viewed as commercial - if the building is 6-units, then some lenders (i.e RBC) may underwrite it as residential.  It is worth doing your homework in this area before you get the clock ticking on your diligence window after an offer has been made.   Commercial financing has more up-front costs to the borrower and you will generally require a larger downpayment ... however, in a private transaction you stand a chance of persuading the Vendor to carry a portion (10% or more) of the financing (as a second position) which can make the primary lender more comfortable with the deal.

I would suggest you find an experienced local investor to either advise or join you on this deal to ensure you do not miss anything during diligence.

Once you get to the Close, the two attorney's (yours and the Vendor's) will handle the transaction.

Daniel Lozowy · Answer

Account Closed I agree with that.

Account Closed · Answer

My brother-in-law is in Vancouver and from the discussions I've had with him, I believe there are some differences between closings in Canada and the US. I think you are best off to talk to a closing agent in Montreal to be sure you are compliant with local laws and customs rather than take advice on a free website in the US. Good gosh, we could tell you anything and you'd never know if it applied to your situation. At the very least, do a search for local investors who might be able to address your questions.

Matt Bertsch · Answer

@Roy N.....Good Stuff. Thanks for sharing!

Daniel Lozowy · Answer

@Bob Prisco thank you.

Bob Prisco · Answer

@Daniel Lozowy  REALLY ??????? GET TO A NETWORKING MEETING . learn the basics ,

Good Luck

Daniel Lozowy · Answer

@Roy N. thanks again! I'm indeed looking for a more experienced local investor to advise me on this type of deal, in your experience is equity something that interests them?

For the vendor carry, could you point me to a resource so that I can fully understand to explain it to owners in the future?

I'm mainly looking at badly operated, value-add opportunities. So if I understand you well, vendor carry may help me get financing on a property that a bank would be normally reluctant to finance?

And how does a primary lender look at the DSC in this case? Do they only account for the NOI and their portion of the financing or do they look at the whole financing on the property?

Sorry if it's a lot of questions, it's just a very interesting topic!

Roy N. · Answer

A "vendor carry" can be beneficial to both parties:

To the Buyer:

Having a vendor carry a portion of the financing (say 10-15%) may enable you to make a slightly smaller down payment (i.e. 15-20% versus 25-30%+) on a commercial property.  It may also assist the building in qualifying for a CMHC program if that is an objective of yours.

If the vendor has a proven track record operating the property, a vendor carry may give the primary lender a greater sense of security.

To the Vendor:

Carrying a portion of the financing (over a period of 3 - 5 years) can be used by the Vendor as a means to defer capital gains on the sale of the property;

Being a lender for a portion - or even all - of the property financing can be used by the Vendor as a means to earn additional income from a property s/he no longer wishes to operate;

Offering to carry a portion of the financing can help sell a property that is otherwise a little difficult to move in the market.

A vendor carry works just alike any other financing on a property.   If the vendor is carrying the entire financing, the purchaser would offer a mortgage on the property and the vendor would register it against the title of the property in first position (i.e. as the primary lender).

If the vendor is carrying a smaller portion of the financing - say 10%, enabling the purchaser to make a downpayment of 15% rather than 25% - then the purchaser would offer a second mortgage to secure this financing and it would be registered on title junior to the financing of the primary lender (i.e. in second position).

Daniel Lozowy · Answer

@Bob Prisco what's a networking class?

How do you close on an Off Market deal? Step-by-Step process

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