There are many reasons to consider buying a property. Some of the more popular reasons include:
1) Having a home that you are paying for rather than renting from someone else.
2) Having your own household that can be customized to your needs.
3) Having a tax shelter.
4) Having an investment.
Regardless of the reasons, the buying process is still generally the same.
1) Set your goals
2) Prepare to purchase
3) Find the right property
4) Negotiate the purchase
5) Inspect the property and prepare to finance the purchase
6) Close the purchase
It seems simple enough, but there are numerous options depending on your goals. Before you start racing to the open houses, consult a Realtor first. An experienced Realtor will help you clarify your goals, have extensive market and neighborhood knowledge, and have access to a wide range of resources that may not be generally known to the public.
Setting Your Goals
If you are buying a primary residence, there are a couple key things to remember. First, every property is a financial investment including your primary residence. Second, your residence will change as your needs change. Many people start with a condo or smaller property. As you mature or as your family grows, you may want a larger or nicer property. In retirement, you may wish to downsize into something smaller or with less maintenance. It will not be uncommon for you to own several different properties in your lifetime. In looking for a primary residence, consider the following questions:
1) How long do I think I will I live there?
2) If I currently own a home, will I need or want to sell or rent it?
3) What neighborhoods do I like?
4) Do I prefer tropical or dryer climates?
5) What is an acceptable commute time to work?
6) What schools would I consider?
7) Do I prefer a regulated community with a homeowners association?
8) How important is a view?
9) How important is a level lot?
10) Do I want a single level or multi-level home?
11) How many bedrooms and baths do I need?
12) Will I only accept newer construction?
13) Will I only accept an enclosed garage?
14) Will I accept a fixer upper?
For an investment property, ask yourself?
1) Is this an income producing investment or equity growth investment?
2) What type of property do you want to invest in (residential, commercial, or industrial)?
3) Who are my target tenants?
4) What market conditions will affect the investment?
5) What is an acceptable profit?
6) What is my exit plan?
7) Is this a 1031 tax deferred transaction (standard or reverse)?
8) How will it be managed?
After you have given some thought to these questions, it’s time to talk to the experts. Start by contacting a Realtor. They can answer many of your questions and direct you to specialists that handle the more intricate details. They will also recommend lenders to help you prepare for purchasing a property.
Prepare to Purchase
The next step is to determine your budget and how you will take ownership. If you need a mortgage, your Realtor can recommend lenders that specialize in the type of purchase you are making. The lender will be able to provide you with a price range that is within your budget. They may also have knowledge on special programs, such as first time homebuyers, VA, FHA, or primary residence loans, which can put hundreds of dollars back in your pockets every month or allow you to qualify with a lower down payment. Lastly, they will be able to prequalify and/or preapprove you for the loan. This is a critical part of the buying process. Having it when you submit offers will not only show the sellers you are serious, but provide you with a competitive advantage relative to offers without them.
This is also the time to consider how you will take ownership. A Realtor can discuss the basic options and direct you to specialists for more detailed questions. If you wish to purchase under a trust or entity, this is a good time to get it established. While you can always change the ownership later, you will avoid transfer costs by being prepared before closing on the purchase.
If you are considering a 1031 exchange or reverse 1031 exchange, it should be identified with the offer and the exchange account must be established prior to closing.
Finding the Right Property
Start broad by identifying neighborhoods that interest you. Your Realtor should be able to share their knowledge of the neighborhoods with you and also recommend other communities that would match your criteria.
Once you have identified the neighborhoods, start looking at the properties. Most current listings on Oahu can be found online. While you can browse them yourself, your Realtor will often preview and filter them for you. They will also be able to arrange private showings where you can see the homes on your schedule without the distraction of others visitors, asin the case of an open house. Lastly, an experienced and well-connected Realtor may have upcoming listings or clients willing to sell in the area. They can often arrange for you to preview properties not yet available to the public.
Negotiate the Purchase
Now that you have found your dream home, it is time to submit an offer and negotiate an acceptance. The Purchase Contract is a complicated document. Besides the pricing, there are thousands of dollars that are negotiated in the terms of the offer. Your Realtor will draft the Purchase Contract, advising you of protective contingencies, customary practices, and local regulations. Home warranty, title and escrow arrangements will also be detailed in the offer. Your Realtor experience in contracting, negotiating, as well as their reputation will play a big role in how well your offer is negotiated. Although your Realtor will give you advice and information, it is your decision as to the exact price and terms that you wish to offer.
Inspect the Property and Prepare to Purchase
From the time an offer is accepted until it legally changes ownership at closing is the period referred to as “escrow”. Escrow provides the time needed to verify the seller’s ownership and the buyer’s ability to purchase the property. It allows the opportunity to confirm the full extent of the property including improvements such as fences and walls, easements and encroachments, and restrictions such as neighborhood associations. It also gives you the chance to inspect your purchase.
The standard Purchase Contract for Hawaii calls for an inspection period during which the Buyer can review the property with professionals. Some of the inspectors that may be called upon include:
1) Home Inspectors
2) Soil and Structural Engineers
3) Pool Inspectors
4) AC Inspectors
5) Septic Tank Inspectors
6) Mold Inspectors
7) Asbestos and Hazardous Material Inspectors
8) Contractors, Roofers, Electricians, and Plumbers
While the Buyer generally pays for these inspections, they are a small price to pay for such a big investment. If the property is not satisfactory, then the Buyer can withdraw during this period and receive any deposits back in full. Your Realtor should be able to recommend inspectors.
Other items that will be reviewed during escrow include:
1) Title or Record of Ownership.
2) Survey of the Property.
3) Subdivision, Association, and any Lease Documents.
4) Sellers Disclosure Statement.
5) Termite Inspection.
6) Building Permits.
7) Other Documents as negotiated in the Purchase Contract.
Each of these documents identify conditions that can greatly affect the property. While not all will apply, your Realtor will be able to help you gather these documents and guide you through these disclosures.
Also during escrow, your lender will be processing your loan application and ordering an appraisal of the property. Your Realtor will work closely with your lender to ensure that they have the necessary documents from the transaction.
Closing the Purchase
When all of the inspections and contingencies have been completed and the loan is ready to close, you will do one final walk through of the property to ensure it is ready for you. You will finalize the recordation documents and take ownership on the closing date. This is usually 30 to 60 days after your offer is accepted. If there are any problems or issues that arise during escrow, your Realtor will negotiate any agreements and prepare the necessary documents. Congratulations and welcome to your new home!
Choosing A Realtor
Your success can be directly related to how good your Realtor is. Don’t be afraid to interview them first and choose a proven, experienced team to represent you. You wouldn’t hire a part time brain surgeon, so don’t accept anything less than a full-time, recognized agency to handle your largest financial asset. When considering Realtors, ask the following questions:
1) Do they know the neighborhoods I’m interested in?
2) Do they have the resources and experience to help me in my situation?
a. Special programs for first-time homebuyers.
b. 1031 exchanges for investors.
c. Contractors for construction and remodeling projects.
3) Are they full time agents that are current on real estate regulations?
4) Are they experienced? How many transactions did they have last year?
5) Do they have any credentials or recognitions?
Lastly, Realtors generally do not charge any service fees for buyers. Although their services are paid by the Seller’s agent, they are obligated to look after your interest and represent you and your needs.