Questions to Ask the Seller

Before plunking down your hard earned cash for a new piece of investment property, there are some serious questions you need to ask the seller. One of the main things to keep in mind is that buying an investment property is very different thing than buying your own home. We often fall in love with a place and decide that this is where we want to live. It’s a very personal decision. Buying an investment property on the other hand, is not about falling in love, it’s about the bottom line.

You are well within your rights to ask the seller for supporting documentation to establish the facts before you buy. Be wary of a seller who is unwilling or hesitant to answer your questions in straightforward manner or who paints a rosy picture of a property yet is unwilling to provide documentation.

You will definitely want to know if the cash flow from the building’s leases supports necessary expenditures. An owner wanting to get rid of an unprofitable property may overstate a building’s earnings. Make sure you verify if the leases cover all the expenses not just the mortgage but also insurance, property taxes, as well as the cost of repairs and maintenance.

Ask if there are any environmental issues related to the property. The law requires disclosure of some things but may not cover everything. A Level One environmental audit should be done before you buy.

What’s the market like around the property? It makes sense to compare rents in the property you are considering with those in the surrounding area. How competitive is the market around you? Is there a glut of available rentals or a scarcity? All these things impact the income potential of the property and you need to see the situation with clear eyes.

If the property already has tenants in it, you will need to ask about the terms of their leases and be aware of how those may help or hinder you in the future.

What kind of improvements does the property require to make it rentable? If it needs a lot of work it can be a warning that the property has not been taken care of very well. If there are lots of things you can see on the surface, a little bell should ring a warning in your mind about all the things beneath the surface, the things you can’t see. You should consider what kind of time investment you are wanting from a given property too. If you are in something for the long haul, then it can make more sense to spend money of expensive improvements, but if you are only going to be a short term investor, better to find something that is ready to go as it stands.