Why Title Matters Even More When You’re Buying an Investment Property

By Brie DeChance, President, Zenith Abstract, LLC

When investors evaluate a property, the conversation usually starts with the numbers.

What is the purchase price? What will it rent for? What are the taxes? What needs to be renovated? What will the financing cost? And ultimately, what kind of return can the property generate?

Those are all important questions.

But there is another question that should be asked before an investor gets too far into a deal:

What exactly am I buying?

That is where title becomes incredibly important.

Whether you’re purchasing your first rental property or adding another building to an established portfolio, a good investment isn’t only about finding the right property at the right price. You also need to understand the ownership, liens, restrictions and other issues that may affect the property you’re acquiring.

A Great Deal Can Still Have Title Problems

I’ve spent years working in the title industry, and one thing investors learn quickly is that every property has a history.

Sometimes that history is straightforward.

Sometimes it isn’t.

There may be an old mortgage that was never properly satisfied. There can be judgments or liens affecting an owner. There may be issues involving prior transfers, estates or divorces.

Property descriptions and boundary issues can create questions. Easements, restrictions or other recorded documents can affect how a property is used.

None of those things necessarily mean an investor should walk away from a transaction.

But they do mean you want to know what you’re dealing with before you close.

That distinction is important.

Investors are usually comfortable taking calculated risks. But there is a big difference between taking a risk you’ve evaluated and discovering a problem you never knew existed.

You’re Buying an Asset, Not Just a House

This is where I think investors need to look at title a little differently than the average homebuyer.

An investment property is an asset.

You may intend to rent it, renovate it, refinance it, hold it for appreciation, bring in partners or eventually sell it.

A title issue can potentially affect those plans.

Imagine spending months renovating a property and then discovering a problem when you attempt to refinance it.

Or building your investment strategy around a certain use of a property without first understanding restrictions that affect it.

Or getting ready to sell and finding an old title issue that now needs to be resolved before the transaction can move forward.

Investors spend a tremendous amount of time performing financial due diligence.

Title should be part of that due diligence.

Your Exit Strategy Starts When You Buy

One of the biggest mistakes investors can make is thinking only about getting into a deal.

Experienced investors are also thinking about how they’re eventually going to get out.

If you’re buying a property today that you expect to refinance or sell several years from now, you want the ownership and title issues handled properly from the beginning.

That is particularly important when investment properties involve LLCs, multiple owners or more complicated transaction structures.

Your attorney, accountant, lender, real estate professional and title company each play different roles. Having those professionals communicating early can make a complicated transaction much easier to navigate.

Title Insurance Is About Protecting Ownership

People sometimes look at title as another line item on the closing statement.

I look at it very differently.

You’re making a substantial investment into a piece of real estate. Title insurance is part of protecting your ownership interest against covered title defects and claims.

The title process also involves examining public records and identifying issues that may need to be addressed in connection with the transaction.

That work happens largely behind the scenes.

And when everything goes smoothly, the buyer may never realize how much work went into getting the transaction to the closing table.

That’s actually a good thing.

Investors Should Ask Questions

One piece of advice I would give any investor is simple:

Don’t be afraid to ask questions about your title report.

If you don’t understand something, ask.

If you see an exception, restriction, easement or other item you don’t recognize, find out what it means and discuss it with your attorney.

If you’re planning something specific for the property, make sure the professionals advising you understand your plans.

The more your team understands about what you’re trying to accomplish, the better equipped they are to identify issues that could matter to you.

Relationships Matter in Real Estate

Real estate investing is a relationship business.

The strongest investors I know don’t simply assemble a different group of people for every transaction. They build a team of professionals they trust.

That includes lenders, attorneys, real estate professionals, accountants, contractors and title professionals.

Why?

Because when something unusual comes up—and eventually something will—you want people who communicate.

You want someone who answers the phone.

You want professionals who don’t simply identify a problem, but work with the appropriate parties to determine what needs to happen next.

At Zenith Abstract⁠, we’ve built our business around that philosophy. Zenith is a women-owned title agency based in Sayville providing residential and commercial title services.

The Bottom Line

Investors are trained to look for opportunity.

That’s part of what makes real estate investing exciting.

But protecting an investment begins before the property ever produces its first dollar of income.

Run your numbers. Inspect the property. Understand your financing. Know your market.

And make sure you understand your title.

Because a successful real estate investment isn’t simply about what you buy.

It’s about knowing what you own.

Brie DeChance

President, Zenith Abstract, LLC

Sayville, New York