|Posted by: miamicanes May 12 2004, 01:23 AM
| I'm seriously thinking about buying a property I found that meets all of my objective criteria (zoning, size, location, cost) and financing it entirely as a cash purchase...
Basically, I can.
I've pretty much given up trying to get a lot purchase loan. Residential lenders won't touch it because I'm buying the lot to build a small multifamily building, and commercial lenders won't touch it because it's not expensive enough to be worth their bother.
I'm assuming that it'll let me save a few thousand dollars in fees and closing costs that would normally be imposed if I were financing it through a bank.
That said, what are some things to consider when paying cash for real estate? For example...
Are there any rituals that banks routinely require for mortgage purposes that can be safely dispensed with entirely? Say, an independent appraisal and/or survey? How about title insurance?
Since I'd be paying cash, does this mean that -I- get to pick the title insurance company and can shop for the cheapest one? If so, is it likely to matter? (I read somewhere that title insurance companies are uniformly expensive because they're generally in the enviable position of having customers who can pass along 100% of their charges to someone else, so they all compete with one another based upon making lenders happy rather than on price).
I assume that the documentation fees work something like they do for car purchases... the actual fees charged by the state/county/city are fairly low, but nobody ever deals directly with them. Instead, they rely upon third-party companies to handle the job who, once again, are uniformly expensive because (like title insurance companies) they have zero incentive to compete on price. Still, I'm assuming that as cash purchasers, we can pretty much bully the seller into using the documentation service of OUR choice... and at the very least, we don't have to tolerate the seller trying to mark up the service's fees even more. Any suggestions as to how to find the best deal?
If the county tax records at www.miamidade.gov state that the lot is 50 x 100 feet, do we still need a surveyor? Or can we take for granted that if the tax records say it is, it is?
Suppose for a moment a neighboring property owner WERE encroaching onto the lot. Would we be perfectly within our rights to exercise self-help and hire a demolition crew with a bulldozer to anihilate anything encroaching on our property (with a proper demolition permit, of course)? Or would we be forced to waste months/years fighting with the neighboring property owner to remedy the encroachment for us?
What closing costs in a Florida real estate transaction are non-negotiable and imposed to everyone (taxes, etc)? What closing costs should we, as cash buyers, throw a fit about paying?
What contingencies are reasonable to insist upon? The property actually has a building on it that I'm going to demolish that might or might not have asbestos flooring and/or mastic (it hasn't been officially inspected yet). Is it reasonable to insist upon a contingency that I be allowed to have the premises inspected for asbestos and that the seller reduce the price if any is found? Or would the seller be likely to tell me to go to hell if I pressed the issue on the theory that asbestos is only hazardous when you try to remove it, and it was probably in the building a half century before I was even born? If there ARE such tiles in, say, just the kitchen, how expensive would abatement prior to demolition likely BE? (I couldn't get any local hazmat contractors to give even a ballpark estimate... the best figure I came up with from scrounging the net was around $2,000 to $5,000).
Oh, I almost forgot... if there's an existing tenant renting the property month-to-month without a formal lease who paid a deposit to the current owner, who's responsible for returning the deposit to the tenant when he moves (or gets kicked) out at some point after I buy the property? If I am, am I expected to factor that deposit into my offer price and reduce it accordingly, or (at least in theory) should the deposit be escrowed somewhere independently of the property's ownership and transferred to my control at closing? Is the existence of such a deposit (based upon a written or oral lease) something that MUST be disclosed by the seller prior to closing? And if the seller discloses nothing about either a lease (written, oral, or otherwise) or deposit and the tenant later claims that there was one, can I tell the tenant to screw himself, confident that if he sues me, I can offer the seller's non-disclosure as irrefutable proof that the tenant is lying, or at least assert that it's something he needs to fight directly with the original owner over (on the grounds that if it existed, it would have been disclosed... but since it wasn't, it didn't exist and thus the tenant is lying)?
Finally, would I *really* be better off making one last try to get a formal lot purchase loan (possibly by lying about my development intentions to the bank and pretending that I'm buying the lot to develop a single family home on, just like they want me to) on the theory that the bank will do a much better job of identifying any potential legal problems with the lot than I'm likely to do myself?
|Posted by: loanuniverse May 12 2004, 12:04 PM
I am not a real estate investor. My exposure to commercial real estate is from the view of the lender. When looking at deals to be financed, I concentrate on the risks associated with the deal to my employer and base my recommendation on my assessment of those risks. As a result of this, my feedback will be limited and I really have no "secrets" on real estate investment to pass along. Having said that, I can give you some feedback on the following, but I am not going to touch some of the issues you brought up.
. I'm assuming that it'll let me save a few thousand dollars in fees and closing costs that would normally be imposed if I were financing it through a bank.. Yes of course. You are not getting a loan so you don't have to pay any of the lender fees.
Are there any rituals that banks routinely require for mortgage purposes that can be safely dispensed with entirely? Say, an independent appraisal and/or survey? How about title insurance? You know.. There is a reason for these "rituals". I see deals involving real estate property about once a week, and I don't feel comfortable estimating a value in some of them. I can be off by as much as 40% in some areas. In others areas, I am usually only 5% off from the appraised value. The thing is that I am not an appraiser by profession, and would rather defer to one.
Title insurance is probably the most useless piece of paper in the world of real estate investing. That is, until you need it. You just don't want to be the one person in a thousand that needs it. The title insurance company will require the survey.
Conclusion: Sure you can save, but you make the deal riskier with every cut in costs.
.. get to pick the title insurance company and can shop for the cheapest one? If so, is it likely to matter? .. Yes you get to pick, and no it really shouldn't matter that much. Usually, the attorney that represents you will also write the title insurance policy. I do hope you are not thinking of doing this without an attorney.
The rest of your questions deal with tenants, environmental concerns, encroachments, and possibly lying to the lender so I am going to graciously not comment on those.