How do you put in an offer on a property that you want to convert?

Once you find a potential property, it is time to act. Don’t miss out on great opportunities because you are worried about whether or not everything will be perfect before you make your offer. Instead, make your offer contingent upon everything being perfect.

Once you have found a property that you think will work, you need to put in an offer to tie up that property. If you don’t, someone else will. You don’t want to take the time to research and study and invest in those studies only to find out that the sellers sold the property to someone else. You want to get the property tied up at the right price before you begin investing a lot of time and money into the project.

The way that you do this is that you put in extensions and contingencies in your contract. For example, if you know that you are going to have to go to the city to get building plans approved, and you think it will take 6 months, then you give yourself a 6 month window to close. However, you would also give yourself two three month extension periods in case something takes longer. The way that you get the seller to agree to this is you give them additional earnest money. You may have to make this earnest money non-refundable, but it definitely goes towards your purchase price. This way, if you are able to get the approvals, you still get your property. If you can’t, then you are only out a certain amount of money.

By having the contingency in the contract, you are not obligated to purchase the property if you are unable to get your project approved. While you will still lose a smaller amount of money, you won’t be forced to buy a property that you cannot use.

Secondly, this gives you more time to do your due diligence. There are so many moving parts to a conversion project, including securing your financing. You want to also have a financing contingency. This way, if for some reason you are unable to get your partners on board, or if interest rates suddenly double so that your cash flow numbers drastically change, you can back out of the contract. More importantly, you don’t want to pay interest on a loan on a property that you are not using. You want to make sure that you have all the approvals in place before you close so that you are not wasting money on interest.

Depending on how complex your designs are and how slow your city is your approvals may be up to three years. You don’t want to sit on a property that isn’t bringing in any cashflow while you are being forced to make payments. Write your contract in a way that you can tie up the property without being obligated to make payments until you are ready, as always, happy investing.