What to put in an offer when you're buying investment real estate
A friend of mine asked me this morning what clauses we usually put in an offer, when we're helping our clients buy and sell an investment property in Ontario.
While every purchase and sale will have unique features demanding custom clauses – often a few Schedules worth of them – most of the time, we use the same base of conditions and clauses when our clients are buying a rental property.
Conditions:
Real estate agreements are either 'firm' or 'conditional.' A firm offer is one where the are no additional conditions on the part of the buyer, and conversely, a conditional offer is where the buyer has some time to do due diligence, such as needing to get approval for financing, having the property inspected, or making sure that the city will let you develop an apartment building on the parcel of vacant land. Most of the time our clients put in conditional offers.
The typical conditions we use are: a financing condition, an inspection conditions, and verification of income and expenses & supporting documents.
If the property we were looking at was a potential development site, we'd probably put in a Zoning condition – allowing us to research and verify that we could develop and build what we wanted to – and an environmental inspection, to make sure that we weren't buying a potentially contaminated site.
It's important to verify the income and expenses, and review the actual leases and bills. We want to run our own eyes over those documents; trust but verify! Also, the bank or lending institution is going to want to see the information as well, as they do their own financial due diligence on the investment property.
Clauses:
In addition to the conditions, we usually will include a number of additional clauses in the Schedule A (and often we'll append more Schedules, depending on the offer. The most I've written is 4 additional schedules to the agreement of purchase and sale. The client was a lawyer ).
If you were purchasing an property that was already rented with tenants, one of the clauses would be that the rents and leases are all legal according to tenancy laws of Ontario, and that the landlord doesn't have any pending or upcoming issues with the Landlord and Tenant Board.
I include a clause asking for the current lodging licence, if it is a student rental that requires one. Also, make sure that the license is current when the property closes – If we don't complete the transaction till August, I still want the license to be in place then!
I like clauses where the seller hands over all architectural & electrical plans, and any information they have on hand about possible expansions of the property. It's amazing what owners have, and how useful it can be in a few yeas when you want to make some changes to the proeprty!
Depending on the type of property, there will be additional clauses; every property is unique, so each agreement of purchase and sale will vary. We recommend all of our clients run offers by their lawyer, and it's a good thing for you to do too.
What clauses and conditions do you include when you're buying a property?
Related posts:
- State of the Student Housing (investment) Market
- 2009 Kitchener Waterloo Investment Real Estate Market Update
- Property Management for KW investment property
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