I think due diligence is a VERY important part of wholesaling and very important for investors in all areas of investing. What methods does everyone hear use and what works best.
The way I do it is as follows:
I find a property (durr) or a property finds me
I look up the information about the tax appraisal and try to find comps (I use realtor.com for comps).
I use the 70% formula which means I buy properties at 70% below the after repair value (ARV).
If a house needed 10k in repairs and the market value was 100k the ARV would be 110k (10+100=110). So I would pay at most 77k (110k x 70%= 77k). However I would need to first find out if the house could sell for 110k in the first place. This is where the comps come into play. I use 3 properties from within a 30miles of the subject property. I use properties that are about the number of bedrooms, bathrooms, and square footage.
Once I have the 3 properties I then take the sale price of each property and divide it by the square footage. Once I have done this for all 3 properties I take the price per square foot (the new numbers) and average them together.
I then take the (average number) we got and times it by the subject property’s square footage. This then gives me the market value for my property.
I know some people like to use the tax appraisal but I’ve found that their not as accurate as they could be. Also I base my numbers on what is selling in THIS MARKET and not last years or 2007 market.
I am open to criticism and of course would like to hear what you guys do as well as far as due diligence.
Are you sure you want to know about due diligence? Or do you want to know how we evaluate properties for value?
Due diligence for me is my protection of my money! Why would I go do any deal without really taking a look at and performing due diligence?
Why would you buy or deal in real estate without performing due diligence?
Due Diligence: Research and analysis of a company or organization done in preparation for a business transaction.
I look at the population of a town or county? I want to know the crime rates?
I want to know how many adults and children live in the area? I want to know how many single people vs married couples? I want to know what the primary industries are? What is the average income?
What are the school districts like? How are they ranked? How is emergency services? What are property tax levels? I want to know market comparables? Appraised value?
Brokers Price Opinion? Will the property qualify FHA? I want to know whether there are potential liens or incumberances? What is the sales market like? How many average days on market? What’s selling and why? Who am I marketing to? Who is my buyer?
I want to know what rent’s are even if I am planning to sell? I want to know what realtors work that area? I want to know location in relation to important family needs and activities?
I want to really access the condition of the property? Are repairs required? What are repair cost’s? Is the property red tagged? Any citations against the property? When was property built? Does it contain asbestos? Is there leaded paint? Are plumbing pipes cast iron and galvenized? Are there lead soldered waste connections? Mold? Mildew?
