Top 10 Things You Must Do When Purchasing an Investment Property

James George Dibbini

Written by

Real Estate Attorney - Yonkers, NY

Posted September 25, 2010

1. Visit the local municipality's building department

o The local municipality's building department houses important records about your investment property. Documents such as the certificates of occupancy, certificates of completion, open permits, violations and property survey. These documents contain critical information about the property, including the legal use and occupancy of the premises, a history of construction performed on the premises, a record of any outstanding violations on the property, the dimensions of the property and a litany of other useful information.

2. Perform a thorough physical inspection of the property

o A detailed physical inspection of the property is essential to determining the soundness of your investment. This investigation should include a comprehensive inventory of the furniture, fixtures, equipment and supplies located on the premises as well as an engineer's inspection of the property including its roof, floor, foundation, heating, plumbing, electric, paint and underground tanks.

3. Inquire about the current tenants

o A prospective purchaser would be wise to examine the current rent roll with security deposit information, the rent arrears schedule and the existing leases with any renewals or modifications through the Emergency Tenant Protection Act, Section 8 or the Department of Social Services.

4. Review a copy of the property's service contracts

o Service contracts govern matters such as elevator maintenance, parking lot maintenance, landscaping, laundry facilities and extermination. The terms of these contracts should be reviewed closely before purchase.

5. Obtain copies of utility bills

o Reviewing the property's utility bills can provide a more precise financial picture of the premises' expenses and income potential. It is advisable that prospective purchasers examine at least one year's worth of monthly water, sewer, gas and electric bills.

6. Obtain a title report from a reputable title agency

o The presence of mortgages, liens or judgments secured against the property can greatly impact the value of an investment property. Depending on the terms of the purchase agreement, the buyer may take the property subject to these debts, so it is critical that a buyer is aware of these debts.

7. Examine the property's tax history

o Obtaining a copy of the property's real estate tax history is strongly advisable. Real estate taxes represent a major expense that accompanies property ownership. Reviewing these documents will help you prepare for this expense and plan accordingly. Consulting with an accountant is highly advisable.

8. Determine whether the property is rent stabilized

o The property owners must file annual registration statements and provide tenants with a copy. Failure to register may render property owners ineligible for rent increases or subject them to additional penalties.

9. Research the fair market value and rent rates in comparable properties

o Examining the fair market value and rent rolls of similar properties provides additional insight into the investment. This information is a useful tool for gauging the value and income potential of the property.

10. Perform an income and expense analysis

o Performing an income and expense analysis helps a buyer understand and prepare for their financial investment. When making a large investment, detailed financial planning is essential.

Additional Resources

Go to James G. Dibbini & Associates, P.C.

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