So you have decided to buy an investment property. You have found the property just right for you and now you are ready to make an offer. Wait! Before you proceed to make the offer, you must be assured that an experienced realtor or lawyer that is familiar with investment properties represents you.
Consider that when you are buying a home you are basically buying bricks, mortar and land. However, when buying an investment property, you are also buying rental income and are inheriting tenants along with all the tenant rules, regulations and laws that accompany them. There are also extensive regulations and by-laws such as Fire, Zoning, Health and Safety issues and so on. Your offer must have the appropriate clauses and conditions to address all of the above-mentioned issues.
Your offer should request tenant acknowledgments whereby a tenant confirms in writing the following:
- Monthly rent,
- Rental deposit paid,
- Move-in date,
- Whether any appliance is owned by the tenant,
- Which utilities (if any) do the tenants pay?
Other information that the offer must request, is confirmation of all equipment and chattels that belong to the property, e.g. lawn equipment, vacuum cleaners, appliances, snow blowers, supplies etc.
The offer should request a copy of the following;
- All existing contracts, warranties and invoices for recent capital expenditures.
- Utility bills for at least 2 years
- Financial statements for at least 2 years
- Zoning verification
- Existing survey
- Insurance policy
- Current rent roll
- Provide all reports in possession eg. Structural and Engineering, Appraisal etc.
- Any Rent Review Order available
- Letter confirming Fire Retrofit compliance
Consider including a clause allowing for a full inspection of all units in the property with an escape clause terminating the offer, if you are not completely satisfied with the said inspection.
Unlike residential purchases, the conditional period for arranging financing should be extended (10 – 20 business days), since commercial lenders will likely request an extensive appraisal and environmental and or structural studies before final approval.
Failure to address any of the above matters may result in unnecessary grief, potential lawsuits and possibility of paying too much for the property.