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Massachusetts Home Buying Timeline

As a future home buyer, it’s a good idea to understand as much as you can about the process so little comes to you as a surprise when you get started. Many first time buyers or buyers who have been out of the market for awhile often think the process take much longer than it does, while many others think the process happens much more quickly than it really does.  At the end of this post you will find a Massachusetts home buying timeline you can save and use as a guide as you go along.   

The Offer to Purchase:

Once you’ve lined up your financing and found a home that suits your needs, the next step would be to make an “Offer to Purchase”. You and your real estate agent would discuss what you think the property is worth and if that number is what you’re willing to pay for it. When the OTP is submitted to the selling parties, it will have the price you’re offering as well as several contingency clauses. Contingency clauses are stipulation in the OTP that protect your interest and prevent the purchase from moving forward if they are not met. Two of the most common clauses inserted into the offer  are the “Home Inspection” and the “Mortgage” contingencies. We will discuss each of these.

At the time of your initial offer, a small deposit ($500-$1000) must be submitted to the selling party. This deposit is to “bind” the offer and is fully refundable if the seller does not accept your offer or if one of the contingencies are not met. The buyer will typically allow the seller 24-48 hours to respond to the offer with acceptance, rejection or a “counter offer”. If the seller counters your offer you will negotiate back and forth until both parties have an agreed upon price & terms or decide to  walk away.

Home Inspection Period:

Once you’ve come to an agreement with the selling party on price and terms, you will enter the “Home Inspection Period”.  This period typically last about 10 days and during this time you are allowed to hire a home inspector to professionally review the property you intend to purchase. The home inspectors job is to walk through the property with you and bring to light any current issues with the home as well as things that may arise in the future. She will also provide you with a full written report of her findings after the inspection is completed.

There are 3 paths you can take after the home inspection takes place.

  1. The inspection reveals there is nothing wrong with the home and everything is in great condition. At this time you would inform the seller that you will be moving forward with the purchase.
  2. The inspection reveals there are some minor issues with the home and based on these issues you would like to lower the price you initially offered the seller. You may then go back and forth with the selling party until both parties have again agreed on a new price.
  3. The home inspector found issues with the property that are beyond your comfort level and you no longer wish to purchase the home. At this point you will inform the seller that you are backing out the transaction. The initial deposit will be refunded to you per the home inspection contingency.

Purchase & Sales Contract:

Assuming you selected to move forward with the purchase of the property in either case 1 or 2 above, you would now move into the purchase and sales contract. The “P&S” is the contract that further lays out the details of the purchase. These details will include dates, times and “to do list” for both the seller and the buyer. Some of these items will include:

  1. What date the buyer will need to have his financing in order for the purchase
  2. What items of the sellers are included in the purchase and which are not
  3. How tenant finance will be handled (if the property is a multifamily building)
  4. What  date will the buyer take possession of the property (the closing date)  

At the time of the purchase and sales agreement the buyer will be required to place an additional deposit with the selling party. This deposit will typically be 3-5% of the total purchase price. This is again to bind the contract and will be refunded if for some reason the buyer failed to be approved for the mortgage. This return of deposit is outlined in the purchase and sales “Mortgage Contingency”.

The Closing:  

Closing day usually take place bout 45-60 days after the initial offer to purchase was accepted by the seller… assuming everything goes smoothly. The closing day is when both the selling and buying parties get together and make the transaction official. As the buyer you will need to bring any final money due to the table. The seller will need to make sure any outstanding bills in connection with the house are paid off allowing you to take over with a clean slate. On this day the transaction will be recorded with the local registry of deeds and the buyer becomes the new owner.

 Massachusetts Home Buying Timeline

Still have questions? Please call us and one of our agents would be happy to provide you with some assistance! 617-297-8641 or email Contact@MandrellCo.com

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I wrote a post a last week about building long-term wealth and had a few readers respond with questions. You can view the post with the following link. (http://mandrellco.com/building-long-term-wealth-real-estate/) One of the questions I received was concerning how to quickly calculate a property’s cash flow and expenses, … so I wanted to share the form I use to accomplish this. You can download the form below and I’ve also provided some quick notes on a few of the forms line items.                

 Note: The attached form uses annual amounts but I will use monthly figures for my examples

Total Gross Income:   Gross income is the total amount of income the property is producing. This will include income from rents, laundry, storage, parking, and any other sources connected to the property.

Vacancy Allowance: It’s assumed that your property will not stay occupied 100% of the year. People will move out and new people will come in. Vacancy allowance is the estimated portion of the year where you do not have a tenant paying you rent. I did not include vacancy allowance in the example from my previous post to avoid making calculation more difficult than needed. If we had included vacancy allowance I would have used the national average rate of 8% and multiplied that with my gross income of $4500.

Effective Gross Income: Effective Gross is Total Gross Income minus Vacancy Allowance ($4500 – $360=$4140)  

Net Operating Income:  NOI is simply your Effective Gross Income minus your Total Expenses.

Debt Service: Your debt service is your total monthly principal and interest payments on your mortgage. Many times borrowers chose to combine (escrow in) their taxes and insurance, while this cash flow sheet breaks these expenses into separate categories. The reason this is done is because your mortgage is a “variable expense” so to speak. If one investors puts down 20% and finances the property over 15 years and another investors places down 3.5% and finances it over 30 years, their payments will be complete different. Taxes and insurance will not vary from investor to investor, so they must be removed and shown in their own expense category to get total picture of what the investments true expenses are.  

Hope this helps!

Free Cash Flow Analysis Form

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We recently hired a pest control professional, after one of our tenants mentioned spotting a mouse. Though she had only seen it once, she could tell it was still present in her apartment. Couple days after the first sighting, I’m there with the exterminator and the whole time I’m thinking, I could do this myself. The exterminator came prepared with a homemade peanut butter decon powder mix. The mice swallows the decon which causes them to have a great need for water, forcing them out of the house. Mixing it with peanut butter was a great idea because it’s more appealing to mice. He started in the basement by placing the mixture in small openings in the ceilings and other places where only mice could reach. He continued to all the apartments including the one where the mouse was spotted, placing the poison in vents, behind large pieces of furniture and behind kitchen cabinets. Places that mice would find easily accessible, but children and small pets would find hard to get into. The total cost was $225 which in my opinion is well worth it. However, next time, I will be the exterminator. This was definitely something I could do myself. Something anyone could do. If it’s keeping money in your pocket, it’s worth a shot.

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