Due Diligence For Real Estate Investors

Do your due diligence when investing in real estate. You've heard that before, but what is due diligence? A uncomplicated definition: "The investigation and verification of the details of a single investment." Start the process before the offer, but in the offer you also will want to consist of clauses that allow you to have inspections done, look at unavoidable documents, and reveal the books.

Due Diligence

Marshalls Home Goods Store

Due diligence should all the time consist of a look at the books. reveal the last 24 month's revenue and expense statements, and watch for anyone unusual, like expenses that are too low or revenue that seems higher than usual. Look at the rent roll, and explore either rents are over or under the shop rates for the area you are in. Check the payroll records if there are employees, and watch for surprises, like accrued vacation time that you'll have to pay as the new owner.

Always verify income. You want to see rental agreements signed by the tenants, as well as rental histories, which might show if there are any problem tenants or late payments still due. Documents for rental deposits should show amounts and where the deposits are (which bank).

Look at the assistance contracts and agreements. Ask if they transfer, or if you are free to convert to great (possibly cheaper) services. Among others, you're seeing for property management, landscaping, snow plowing, pool cleaning service, and heating and cooling theory maintenance agreements.

Do your initial surface inspection. Walk colse to with pen and paper, and note anyone unusual or in need of repair. Dispose for professional inspections where needed. Be sure that the electrical and plumbing systems are up to date and meet current codes. Appraisal of how many years of use the roofing has left, and look at driveways, landscaping, and the health of surface paint.

Your due diligence should consist of an interior inspection. Meet some of the tenants if you can. Look for any problems you'll have to fix in the coming years. Watch for water damage or fire damage, pest problems, and unavoidable "problem tenants," or "problem apartments." Are there empty units that are listed as occupied? Get the necessary pest inspections and safety inspections. Some Fire Marshalls will do a free inspection to verify that the building meets current codes.

Call local authorities. Ask about any zoning or encroachment issues, or permit problems. Have there been any fire code violations, and were they fixed?

It is regularly best to use professional help when doing your due diligence. Your accountant can decipher the books great than you, and observation anyone that doesn't add up. A lawyer can reveal your offer and other documents. She can also tell you what other things you should be doing.

Take notes. Do something about serious issues (have them fixed or adjust your offer). Most problems you'll run into when buying revenue properties are not entirely unforeseeable. They can be avoided or resolved if you use your due diligence checklist diligently.

Due Diligence For Real Estate Investors