The Mechanics of a Real Estate Purchase Contract

There are a few key components of a real estate purchase contract. These areas of the contract are areas that both you and the seller want to win on. Since you know that you are both vying for these particular sections of the real estate purchase contract, decide which section is most important to you and then attempt to give the others to the sellers. This will allow them to feel like they walked away with a good contract too.

The first key area of a real estate purchase contract is the price. This is typically the area that you want to win, but not always. You may find that they are priced well enough that you are more interested in terms or contingencies than you are in the purchase price. However, if they are asking more than is reasonable for the net operating income, you are going to have to get them to negotiate down to a price that makes more sense.

The second key area of a purchase contract is the contingency section. There are certain things that you need to check about the property before you can buy it. At this point you may only have the seller’s word for what the income and expenses are. You need to be able to verify those numbers with tax returns. You may have inspections that need to be completed. You may have financing contingencies. You may have to get a feasibility study done before your investors will move forward. Any one of these items could keep your project from moving forward. If that happens, you need a way to back out of the contract, preferrable with your earnest money in hand.

The next area of the contract is the terms. You may find a seller that is willing to do seller financing with a reasonable down payment at the right price. This may make the property much more appealing than if you had to find financing for the entire amount. You may need a long period of time to get all of your approvals in place and a seller is willing to give you that amount of time as part of the terms of the contract. There are times when the terms can make or break a deal.

Finally, the closing date. Sellers want their money yesterday. You want to make sure that everything is in place before the interest starts accruing on the money that you are borrowing. This means that you want as many approvals as possible before you close. If you don’t have those approvals before you close, you will be paying interest on your loan while you do the legwork.

Make sure that you know what matters most in each self-storage facility transaction that you make an offer on. You need to know which section, or which 2 sections are most important to you. This will allow you to give some of the sections to the seller so that you can create a win-win scenario. Don’t be afraid to let the seller feel good about the offer too. Just make sure that you are letting them have the least important sections. As always, happy investing.