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Protect yourself when making an offer on investment real estate

On Behalf of | Apr 17, 2020 | Litigation

Purchasing investment real estate in the Santa Ana area could mean an investment of hundreds of thousands or even millions of dollars. A large mobile home park or a multi-unit residential facility could easily carry a seven-figure price tag.

That means you need to be confident that you are making a sound investment before you incur all of that financial liability. One of the best ways for those looking to make investment real estate purchases to protect themselves during the initial process is to include certain critical contingencies in the purchase agreement that they submit to the seller.

Contingencies limit your obligation to complete the purchase

When you make an offer with contingencies, that means that there are specific situations in which you don’t have a legal obligation to complete the purchase. Two of the most important contingencies for investment properties are financing and appraisal contingencies.

A financing contingency indicates that you will only complete the purchase provided that a mortgage company approves the purchase and agrees to provide you with financing. Without such a contingency, if you can’t secure a mortgage, you can wind up out your earnest money or even taken to court by an angry seller.

An appraisal contingency often goes hand-in-hand with a financing contingency. A professional review of the property will need to affirm that the purchase price reflects the fair market value and condition of the property.

A mobile home park with dozens of units will be more of a liability than an asset if you have to completely remove and reinstall the plumbing or electrical systems in order to comply with state codes. Including an appraisal contingency will allow you to back out of the purchase or renegotiate the price if the condition of the property after appraisal does not reflect what you thought it was at the time you made your offer.

These contingencies can help you avoid a purchase that could be more of a liability than a benefit and give you negotiating power as you move forward with your purchase.