Last time I wrote about my recent property purchase, I had just resolved the last bit of haggling over price after reading the inspection report.
Now that I was committed to purchasing the property, I needed to do my part to complete the transaction.
Assuming you have good credit and stable employment, financing a property is frankly not all that difficult. When requested, you provide documentation about every possible aspect of your financial life. Sometimes the same documents are requested over and over, and as the closing process marches on, the lender requests updated account statements. At worst, it’s stressful, as you are given little feedback on how close to completing the process you are. At best, it’s a mildly annoying chore to continually find and provide documents.
For me, financing is always made a little bit more complicated by my self-employed status. Most lenders understand regular W2-earning folks a lot better than they understand those of us who work for ourselves or as independent contractors. I usually have to provide two years of tax returns to show that my earnings are consistently adequate to cover my own expenses, and those of my properties. If you are newly self-employed, you may have difficulty securing financing if you don’t have at least one tax return showing adequate 1099 income.
On each of my properties, I have used a different lender, and this time was no exception. I have always been a little dissatisfied with my lenders, and my last loan officer’s responsiveness had been so poor that we were forced to delay closing by ten days because he was completely unreachable, ignoring calls from the title company, me, and my agent. As far as I can tell, this is something of a pattern with lenders: responsive until you commit to completing a transaction with them, and then total radio silence. My belief is that this is because most loan officers make their money on volume, and since most buyers are not repeat customers since they only purchase a single property for themselves, there is little incentive to provide good service once the business is locked in.
This time, I decided to work with a bank recommended to me by a close friend and fellow investor. For once, my experience was really, really good. I was never asked for the same document twice, and just a week after releasing the contingency, I was told that we could close any time I wished. Since I needed to wait to have adequate cash to make the down payment, we still closed at the end of the 45 day window, but we did so on-time and the entire process was (for once!) low-stress.
Insurance is easy to get, but it’s also easy to over-insure and pay too much. Whenever you request a quote from an insurer without placing limits on the level of coverage and deductible, it’s an invitation to get a quote for a cadillac plan with low deductibles and high premiums.
I guess I can’t fault the insurers for this. I usually just let them provide their default quote and whittle down the unnecessary coverages (like flood in a non flood zone) and bump up the deductibles until I’m paying a premium I’m happy with.
I purchased my last policy in this market for $904 per year from the first insurer I talked to– sort of a stupid mistake, as my usual policy is to shop quotes around. I had the time to do so with this purchase, and boy am I glad I did! After speaking to three different agencies, I got a quote for comparable coverage on the new property for $680 per year from a major national insurer. Even better, they provided me a quote on my other property in this market and it, too, came in at $680 per year! Not only did I find a few hundred dollars in savings compared to what I had budgeted, but I was able to switch policies on my other property and get a nice little refund on the premium!
I was in a bit of an awkward situation when it came to my property management. My agent is employed by the same company that I had managing my existing properties in the market, but between starting to look for property and submitting my offer, I had decided to fire them. I liked working with my agent, and I didn’t want to complicate the purchase process with the bad blood of a breakup. My PM company had to know that the end was coming, as numerous investors working with them had run into the same brick wall when it came to recouping our uncontrollable utility costs (among other concerns).
When the offer was accepted, it was time to make a decision about who I would be working with going forward. I spent several weeks right after Christmas getting in touch with property management companies, interviewing them, and getting a feel for how they did business. By and large, most PM companies in a given market tend to charge about the same amount. They differ most when it comes to responsiveness and caliber of tenants placed. Though all of the companies I spoke to said the right things, only one gave me a feeling of being genuinely hungry for my business and committed to doing an excellent job. I received consistently prompt calls and emails back for weeks as I worked through my numerous questions and concerns.
Another concern for me was that I would be moving from a company that offered integrated brokerage, PM, and rehab services to a company with no in-house contractors. I needed to get referrals for good contractors and get quotes for the rehab on the property… without tipping off my agent that I was doing so. My new PM was very helpful in putting me in contact with some of the contractors they work with, and I had two tools that were helpful in getting the work quoted: my inspection report, and the rehab quote from my original property manager. I removed the prices from the quote and sent it to several contractors for a quote, along with the associated page references from the inspection report.
I had long been concerned that I was paying too much for maintenance and rehab work from my first PM, and the quotes that came back confirmed my suspicion. The highest quote was over 20% less than the amount quoted by my “integrated” PM company.
With property management and rehab lined up, I was ready to close the property and move immediately on to getting it ready for rent.
It will be several weeks before I post about the next step in the purchase process. First, the rehab is just finishing up this week, so I need some time to process the results, which appear to be very good indeed. Without spoiling it too much, my property manager just signed a lease with a great tenant who will be moving in next month. Second, I’ll be out of town for ten days for more dental tourism starting this week, and I’ll be blogging about that instead.