John Howard is more commonly known as “The Property Expert” amongst his many followers. We are covering John’s book entitled “Property Investment and Development for Newcomers” which perfectly complements his one-day property investment seminars. In this article we will take a look at the subject of putting a deal together which sounds very simple in theory but requires preparation in practice. This process covers the purchase of a traditional property which requires a degree of refurbishment and a mortgage.
Building your team
The term “fail to plan, plan to fail” has never been so apt than for those looking towards investing in property. If you are considering a long-term career in property investment, finding people you can work with and trust is extremely important. You could potentially be working with a fairly tightknit team for many years to come so you need to get it right. Your team should include:-
• Mortgage brokers
• Solicitor/licensed conveyancers
• Builders
It is important that all members of your team are experienced/fully qualified and you are able to build up a rapport with them. Ask for references and speak to former clients because you will find the trust is very important going forward. Check out John’s book for more information about building your own team.
Before making an offer
Once you have found a property which fits your investment criteria there are a number of actions you should take before making a formal offer. First of all, depending upon what needs to be done to the property, bring your builder into the equation. Show them the property, discuss your plans and together come up with a list of work which needs to be done and a budget.
The next thing to do is approach two separate estate agents, show them your planned refurbishments and ask them what they think the property should be worth after the work. An interesting observation from John Howard:-
“In my experience, what they say verbally and what they write down in an email can be very different. There’s nothing like asking someone to put it in writing to concentrate their mind and help them come up with a more sensible valuation.”
When you put the property back on the market John also believes it is sensible to approach the broker who sold you the property in the first place. They will be aware of the details, they may have potential leads to chase up and this offers the best opportunity for a relatively smooth sale. It is also useful to be honest with the second estate agent, explain that if there are delays in selling the property they may have an opportunity to take over the sale.
Putting your money on the table
If the figures stack up and you are happy with the property then it is time to make an offer. It is important that you are disciplined when making the final decision. Take emotion out of the equation and look at the cold hard facts, something John Howard can teach you at his very popular seminars.
At this point no doubt the seller will ask how quickly you can close the deal and try to put you under pressure. While this is often the start of a 12 week process the key is to stay in control and not be rushed. Be prepared for the seller to ask for proof of funds or some kind of formal confirmation from your mortgage broker. Once you receive formal confirmation of the purchase by the estate agent you need to ensure this is exactly what you agreed to, no more, no less.
Now that the wheels are firmly in motion it is time to sit down with your mortgage broker again, arrange a valuation of the property and secure the appropriate funding. The seller can try to pressure you and speed up the process but until the property valuation has been completed, mortgage funding will not be forthcoming. A very useful tip from John Howard:-
“When your offer has been accepted, you’ll no doubt be asked how quickly you can complete the purchase. Always say 28 days from receipt of contract. It’s highly unlikely that it will be done this quickly, but it’s what the buyer and the agent want to hear.”
Checking the purchase contract and local searches
It is vital that the purchase contract for the property corresponds in detail to the deal agreed. If there are any discrepancies, irregularities or issues which need further investigation, ensure that your solicitor/conveyancer addresses these as soon as possible. Far too many property investors wait until much further down the line before checking the purchase contract against the deal agreed. If there are discrepancies, some of which could scupper the deal, you will still need to pay for all of the additional work done by your team.
There is some debate as to when you should carry out a local search with some parties suggesting later on in the process. John Howard likes to keep control of the transaction and, as a local search can take up to 3 weeks, it is better to start sooner rather than later. This search will highlight any issues in the area, legal problems or planned developments which you should be aware of. John Howard has walked away from many deals at this point; don’t be afraid to follow his lead!
Bringing your deal to fruition
This is the point of the process where your legal team will contact the seller’s representatives with any questions and queries you may have. By the time the seller’s representatives reply you should have received formal notification of your mortgage funding and results of your local search. It is also sensible to take a formal quote from your builder for any refurbishment work discussed previously. While dependent upon the cost of refurbishment works, it may be appropriate to put the work out to tender.
Your solicitor/conveyancer has a legal obligation to provide your mortgage company with a report of all findings and issues which may need to be addressed. Assuming everything is straightforward then your mortgage funding will be released. If there are major issues then it may be sensible to walk away from the transaction unless they are easily rectified. So, now you have all of your ducks in a row you’re ready for the final deed, exchanging contracts!
Exchanging contracts
While the exchange of contracts is the end of the process, it is worth noting that you can still reduce your offer any time until the actual contracts are signed and settled. There are legitimate reasons why you may look to reduce your price, perhaps you have come across some discrepancies, the market is struggling or you are just chancing your arm! You can either negotiate through your solicitor/conveyancer or contact the seller’s agent directly. If you decide to go down this route it is important that the seller’s representatives believe you are serious, even if you are just trying it on!
Once the contracts have been signed and settled, normally within 28 days, the property is legally yours. Read more about John Howard’s advice and experience in the world of property investment here.