Quick Answer
Review title before committing substantial rehab funds so you understand ownership, lien, access, boundary, and restriction problems that could affect the investment. A title issue discovered after you have spent money on improvements can delay resale, reduce profit, or destroy the deal entirely.
Few things are more frustrating than closing on an investment property, spending weeks and thousands of dollars on rehab, and then discovering a title issue that prevents a smooth resale or refinance. Reviewing title early avoids this scenario.
Example
An investor contracts to purchase a property for $180,000 with a plan to invest $70,000 in rehab and resell for $340,000. The investor opens title, and the title commitment reveals an old deed of trust that was never released, a recorded restriction that limits the property to single-family use only, and an easement that runs through the backyard where a new structure was planned.
If the investor had not reviewed title before purchasing, these issues would not be discovered until attempting to resell, when the end buyer's title company raises them. At that point, the investor has already spent $250,000 and cannot easily walk away.
Before Major Rehab Spending, Understand
- Ownership: Confirm the seller actually owns the property and has the right to sell. An ownership dispute discovered after closing is far more complicated to resolve.
- Liens: Know what existing liens must be paid off and whether any liens will survive the closing.
- Easements and restrictions: Understand what rights others have to use the property and what restrictions limit your use.
- Access: Confirm the property has legal, recorded access.
- Boundary issues: Check for encroachments or boundary disputes that could affect improvements or resale.
Example: Adding a Structure Where a Restriction or Easement Interferes
An investor buys a property with a large backyard, planning to add an accessory dwelling unit (ADU) for additional rental income. After purchasing and beginning design work, the investor reviews the title commitment and discovers an underground utility easement that runs through the planned ADU location and a restrictive covenant that prohibits secondary structures. The ADU plan cannot proceed as designed.
Reviewing title and restrictions before purchasing would have allowed the investor to adjust the plan, negotiate a lower price, or walk away before investing time and money.
For early property research before committing to a purchase, consider a Property DNA Report. Property DNA is an informational property-research resource and does not replace a professional title search, commitment, examination, or title insurance policy. For more on the fix-and-flip process, read title considerations for fix-and-flip investors.