Intro

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Welcome to the 5 Minute Prime Podcast. Quick actionable tips to master personal finance and real estate investing. In just five minutes a day, we'll help you build wealth and achieve financial freedom. Hey Prime Investors, Martin Maxwell here. Welcome back to the 5-Minute Prime Podcast.

Ten days to back out

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Say your offer on a duplex just got accepted, and your contract gives you 10 days to back out. 10 days to find out if the building is what the listing said. What do you check first? Most buyers book the inspection, then wait on the report before doing anything else. On a rental, that's the wrong first move. The inspection matters. But the number the whole deal stands on is the rent, and the thing that takes longest isn't even in your hands. So today, the order. And who's really holding each clock?

01 · What your ten days are

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Before the order, what are those 10 days? Depends where you're buying. In Texas, on the standard resale contract for one to four units, it's usually the option period. You put up an option fee within three days, and in return, you can walk away for any reason as long as your notice lands by 5 p.m. local time on the last day. Walk-in time, and the seller keeps the option fee, and your earnest money comes back. Most other places use an inspection or due diligence contingency for as long as your contract says. What happens when that deadline passes and you've said nothing depends on the form you signed. Under some contracts, silence means you've accepted the property. Under California's most common form, a contingency stays open until you remove it in writing, though the seller can formally demand that you act. So read your own contract tonight and find the exact hour your clock runs out.

02 · Five checks, in order

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Now the rule for the order. Start the slow things the first morning. Check the things that can kill the deal before anything else. First, the leases. When you're under contract on a rental, ask for the leases, not just the rent roll. A rent roll is a summary the seller put together. The leases are what the tenants actually signed. Put them side by side. The rent, the deposit, the end date, any month that's free or discounted. Then ask the seller to have each tenant sign an estoppel, a short letter confirming their rent, their deposit, and any side deal. Tenants sign on their own schedule, and not every lease requires them to, so that request goes out on day one. If a tenant won't sign, get the seller's statement in writing instead. A number the seller typed isn't proof. A signature from the person paying the rent is a lot closer to proof. And while those leases are on the table, make sure every unit they cover legally exists. Ask the city for the building's permit history, and the certificate of occupancy if your city issues one. A basement unit with a lease and no permit is still a unit with no permit. If the property isn't a legal use under the zoning, the appraiser has to say so, and Fannie Mae's rules start from a legal use, or a legally grandfathered one. That can stop the loan, not just the price. Second, the appraisal. Your lender orders it, and it's often the slowest paper in the deal, so ask for it the day you sign, with a date. On a two to four unit building, the appraiser also gives an opinion of market rent. Under Fannie Mae's rules, the lender counts only 75% of the gross rent as income when it qualifies you. And if market rent doesn't support the rents in the leases, the lender can use the lower number. The leases can be real, and the rent can still be too high for the lender. With the 30-year rate just under 7.2% in Freddie Mac's weekly survey on November 5th, there still isn't much room for a building that earns less than you planned. And if the appraisal lands after your 10 days? In Texas, the standard financing addendum has two deadlines. Your own loan approval has a deadline written into the contract, often well before closing, and a shortfall in the rent the lender counts can land there. The property approval lets you walk up to three days before closing, but only if the lender decides the property doesn't meet its requirements, with the reason in writing. Elsewhere, look for a financing or appraisal contingency in your contract. Third, insurance. I've made the case before that the quote belongs before the offer. If you're already under contract without one, get it this week and send your insurance agent the inspection report the day it lands. The roof's age and the wiring can change the price, or the answer. Fourth, the inspection. With the sewer scope on the line out to the street. Book both on day one. Good inspectors fill up. What to do about a big repair is its own question. The job inside these 10 days is to find it. Fifth, the utilities. On a multi-unit building, find out which units have their own meters and who pays for water. Ask for 12 months of the bills the owner pays. It's the cheapest check on the list. It rarely kills a deal, but it sets a cost you'll carry every month.

03 · Who holds the clock

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On a rental under contract, the deadline in your contract is yours, but almost nothing you need to beat it is. The appraisal runs on the lender's calendar, the estoppels run on the tenants, the insurance quote runs on the carriers, and the permit records run on the cities. That's why the order of your checks matters as much as the checks themselves. Anything someone else controls goes out the first morning, with the date you've asked them for. The checks only you can do, you do as the answers come back. And if one of them won't be back before your deadline, ask for more days, in writing, before the deadline, not after it. Better still, ask for those days when you write the offer. Nothing promises you a patient seller. But if the building has been sitting, asking for 14 days instead of 10 is a fair ask. This is where the core five from my book earns its keep. Your lender orders the appraisal the day you sign. Your agent chases the leases and the estoppels. Your contractor walks the building with the inspector, your insurance agent quotes against the report, and your property manager reads those leases with you. Five people, each holding a clock for you. Then comes the hard part. If the leases don't match the rent roll, or the appraiser's rent comes in under the leases, run the deal again at the lower number. If it only works at the seller's rent, it doesn't work. Numbers decide, not how much you like the building. And if you're already past your 10 days, don't panic. Find out which contingencies are still open in your contract and talk to your agent before you sign anything else.

Tonight's challenge

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So here's your challenge for tonight. If you're under contract, write your deadline at the top of a page with the exact hour. Under it, list the five checks the leases and estoppels with the permit history, the appraisal, the insurance quote, the inspection and sewer scope, and the utility bills. Next to each one, write who's holding it and the date they promised. Not under contract yet? Write the same page before your next offer and ask for the days it needs. Then what? Anything without a date gets a phone call tomorrow morning. And once the rents are confirmed, run the deal again at the lower of the lease rent and the appraiser's rent in the deal analyzer at reiprime.com slash deal or any spreadsheet you trust. If it still works, keep going. If it doesn't, you still have time to say no. Ten days goes fast. Spend the first morning on the things you don't control. I'm Martin Maxwell. This has been the Five Minute Prime Podcast. I'll see you next episode.