You may already know the scenario. Momentum builds, your paperwork is done after rushing through last minute signatures etc, you deliver your package overnight and without even having to be there you are the proud owner of a new addition to your real estate portfolio. As the smoke clears and everyone goes home after the closing table, you may be left with the question, “What now?”
After all the adrenaline rush and getting to the closing table, which requires a lot of patience, attention, organization, etc., you might be a little disappointed. It is not to worry! Amidst all the excitement of now being the proud parent of a newborn project (at least new to your portfolio), you shouldn’t forget that there are still items and tasks that require your attention.
IMMEDIATELY AFTER CLOSURE
After you leave the closing table (if you were even there), one important thing to make sure you have is a copy. A copy of what, you may ask? A copy of everything that came across the table during the shutdown, especially anything you put your signature on. While this may be common sense, it’s surprising when I talk to customers and members of our group who say they didn’t receive a copy. If you did not receive it immediately after closing, be sure to request a copy from the group that coordinated the closing, be it the attorney, the title company, etc. This is something that could save you a lot of headaches down the road.
One PARTICULARLY important party you will need is HUD; the long legal form that shows all closing costs and other money transfers. The reason this is so important is that you will need to provide a copy to your accountant at tax time, or if you own your taxes, you will need the facts and figures. If you did a long-distance closing, this would have been delivered to you with your closing packet.
Hopefully, this next step should have already been started during the initial letter of interest (LOI) stage. Again, this is a common sense item, but it’s still very important. Make sure you have a separate file or folder for this new project, either in a file cabinet or file folder on your computer. Keep it identified so you can easily go back and find the project you’re looking for. It’s up to you though, and I’m sure everyone has different ways of organizing their files (by project status or location, address, date acquired, type, etc.).
You may even want to have one file for the project and sub-folders for individual items such as initial deposit (copy of completed reservation form, check, unit selection criteria, etc.), loan application, closing documents, and folder for post-closing events. (such as loan settlement, insurance, taxes, etc.)
The good thing is that you have time; it’s time to get things straightened out and ready, whether you started in the LOI stage or even if you’re just getting there now after lockdown.
DON’T FORGET THE ESSENTIAL
Whether you are running your real estate projects through a company or not (i.e. you have established an LLC or other company for the transaction(s)), or if you are doing it on an individual basis, the following items are essential to having a successful real estate business. project/experiment.
Accounting – While the extent to which the following applies will vary depending on the number of projects you have or the complexity of your business, etc., doing it now will save you a lot of headache, especially around tax time and when you are going to sell her project. If it’s posible:
1. Set up separate bank accounts for the project. Alternatively, you may want to bundle multiple projects under a single account. One way to group these projects is by project type (ie rental units, land only, etc.). It may be best to consult with your financial adviser for tips and advice in this area.
2. If you use a financial software package, where applicable, set up different subaccounts for each project. For example, if you receive Rent on multiple projects, you would have Rent-Project 1, Rent-Project 2, and so on. This will help keep track of income and expenses by project.
3. Keep your financial advisor up to date on your recent acquisition. Hopefully it has already been discussed before the purchase, etc.
4. Keep your financial adviser(s) (and others) informed of planned purchases and acquisitions. They may also be interested in buying for themselves, and if it’s a great deal, they’ll appreciate you passing on the information.
Legal – One of the common issues that comes up with every new purchase is the following. Has the purchase of your new property changed any liability issues you may have? You should discuss the new acquisition with your legal counsel (again, if you haven’t already).
One of the main topics of that discussion should be whether there are any necessary changes to your coverage or liability protection that may be required as a result of the new project. Here’s another example where you’re hopefully just continuing the conversations with your advisory team that were started prior to the purchase.
Property Management – Typically, you should already have your property manager or property management company lined up before you close on the property. If you enter a project through a wholesale buying group, there may already be a property manager lined up who is already very familiar with the property, already has tenants in other units in the project, etc. If the management company hasn’t been identified yet, get some references from different property management groups that are in the area and do some research around them.
If the project is new construction and there is a construction period, you may want to start grinding the details ~60 days before the certificate of occupancy (ie before you can place a tenant, etc.). With bulk buying groups, discounts can usually be negotiated if a large enough representation of that group goes to the same property manager.
Expenses – now the fun part. There are typically bills associated with any real estate project (ie, mortgage, insurance (investor’s policy), etc.). Please check to make sure all invoices are sent to your correct address; make sure mortgage payments are sent to your home/office address and not to some PO box, for example, where the project is located.
As a helpful hint, if you need to make an address change, the US Postal Service offers a free service to route your mail from the wrong address to the correct address; you need to go to your local post office and fill out the form Vs shipping online. This will help any mail that is “in the wrong mailbox” to reach you directly while the provider corrects the address in their system.
Another thing to check is the numbers. As expenses begin to add up, you may want to verify that the actual expenses are what you had planned during your initial analysis. If there is a big discrepancy, find out why and also note the actual values in any of your spreadsheets or project appraisal forms.
PLAN FOR THE FUTURE
Phew! Ok, now the smoke has cleared up (or at least thinned out a bit). You’ve done all you can do at the moment regarding the closure of this project. Do you just sit and then wait until it’s time to exit the project? The answer, as you may have expected, is NO! Based on your own investment strategy (or at least the initial strategy that prompted you to get involved in this project in the first place), plan periodic evaluations of the property to make sure it fits your portfolio and your initial investment strategy. It may be a good idea to keep a file in your planning folder with your written rules and thoughts about why you first entered the property, as well as your initial thoughts for your exit strategy. This way, you can review these items and re-evaluate the property or your strategy as well.
For example, you may have purchased in the tax-advantaged GO area of Mississippi, where you qualified for additional 50% depreciation from the IRS. One strategy may be to rent it to a regular tenant, keep it for 3 years, and then sell it to another investor or trade it for another property. Another strategy may be to start with a rent-to-own tenant initially (which can result in higher rents along with a down payment) and then sell directly to the tenant after 2 years (or whatever term has been agreed upon). ).
As I mentioned, you can review your exit strategies regularly after closing. Once you do your review, plan to meet with your advisory team to brainstorm with them and see what their input is.
RESUME
Investing in real estate is a lot like investing in the stock market. More importantly, successful real estate investing is a lot like successful stock market investing. A lot of planning/discipline is required on the part of the investor. For the Real Estate Investor, this does not end with the purchase of the property. Based on simple planning and organization, essential post-purchase tasks will become second nature and help you succeed in all your real estate investment ventures.