Hello everyone,
I have been reading some books and reading the postings on this site (they are a great learning tool all in themselves).
I know this has probably been addressed before in this forum but I have not been able to find a posting with the info I am looking for in the archives.
Can someone breakdown due diligence for me? Exactly what are investors looking for when they are doing due diligence?
Thanks!
Mainly, if there are any leins/encumbrances on the property, how much it’s REALLY worth, and how much is REALLY owed.
cb, it’s really data mining. getting as much information as possible on a property. that’s what any professional investor (be it in business, stocks, whatever…)
how you do it varies.
Due diligence is just exactly what they mentioned, doing your homework so as not to get screwed.
Some things to watch out for that many new investors might miss on both rentals and rehabs:
City compliance- does the city require properties to be up to a certain standard and must they be inspected by the city
Verify rents from the tenant that live in the homes, call the for rent signs around the potential property, and ask for tax returns from previous years. Many landlord will try to lie about rent rates to allow for a higher price. In some instances the rent may be correct but its just a fluke for the area. A case like this a home maybe rented for $800 to an idiot or a govt tenant but in reality if they leave you may only be able to get $600 for rent.
Be sure that the area that you are rehabbing in doesnt have some sort of association that requires special construction (Historic zones)
Verify with the zoning board that the property you are buying is approved for its current use, one of the big ones that gets people is single family homes converted to apartments
Dont just check previous solds on homes your flipping, check on current homes on the market, as well as homes that have expired on the MLS in the last 6 months in your particular area, along with recent solds. Too many people get caught in sagging markets by checking only previous solds.
These are just a couple of things to add to doing your homework.
Eric Medemar
Eric brings up a good point about current use. Also check to make sure that they have the proper permits for the lovely addition that he and his buddies put up over a few weekends and a case of beer.
BTW how does one check on expired MLS listings without asking a RE agent?