Due diligence is the process of double checking everything before finalizing a purchase. Proper due diligence is an absolutely crucial part of every profitable investor’s success. In this article, I’ll talk about the best ways to do your due diligence based on my experience in real estate.
Due diligence should start with the proper verification of the books. You should check all the rental agreements and double check all rental histories. Review at least the last two year’s financial statements and see if there’s anything unusual that raises a red flag.
Double check the actual rental income with the amount of rental income the building should be receiving based on the lease agreements. These numbers will often not match up. As the building’s future owner, you should know why.
Check all the utility bills. Make sure there are receipts for every payment. If there isn’t one, contact the city or the utility company to get a copy of the receipt.
Look into how old the building is. If it’s old, look into what the building codes were when the house was constructed. Will there be costly renovations you’d have to make to bring the property into compliance with current building codes?
If the building is new, does it have a home owner’s warranty? Look carefully over this contract so you know what it covers.
Walk around the building and do an inspection by hand. Look at the conditions of the walls and watch for fire or water damage. Check the electrical and plumbing systems. Make an educated guess on how long the roof will last before it needs repairs.
Remember that everything you find during the due diligence process is “ammunition” you can use to negotiate a better deal with the seller. The seller wants to make the deal happen as much as you do, but there’s no reason for you to pay for more than the property is really worth based on its condition.
Begin your due diligence process as early as possible. Start your inspections before you make an offer. Even after you’ve made an offer, make sure that you have clauses in the contract that allow you to inspect the property and the necessary documents.
There is a lot of free information available to you about buying, selling or investing in real estate. For complete information about the real estate market including current homes for sale, property values and more please visit the most complete website online dedicated to everything real estate at www.pauldingandpolk.com. Please feel free to contact me with any of your real estate or mortgage related questions and I will be more than glad to answer your questions. Call me on my cell at 404 374 1620 or email me at firstname.lastname@example.org
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