Due Diligence checklist

[Brad Kanouse]

Hi all,

I am new to the investing scene and am making a spreadsheet/checklist of tasks and due diligence that I can refer to when I go thru the process of BRRRRing.  What would you make sure is on that checklist? 

[Brenden Mitchum]

Hey @Brad Kanouse

Love this! Due diligence is definitely a step to be taken seriously and not enough new investors do. Assuming this is for small MF/SF, some things I would be sure to include:

1. Major systems: HVAC, water heater, roof, electrical, plumbing

2. Zoning!

3. Permits - may not be a deal breaker necessarily but still good to know

4. Foundation - cracks, moisture in basement/crawlspace

There are plenty of smaller items but if you're getting into BRRRRs, these are the four major ones that could make or break a deal. But that doesn't mean the smaller items aren't important. They all add together to give you an idea of how much capital it'll take to reach that target ARV - the more exhaustive your list, the better. Pick up J. Scott's Book on Estimating Rehab costs for a fairly thorough list info on each item.

And please, feel free to reach out anytime if you have other questions or just want to chat!

[Brad Kanouse]

Hi @Brenden Mitchum thank you for the information.  That is all great information.  I will also go and check out J. Scott's book.  I have heard it mentioned on the podcast before and haven't gotten to it yet.  I have about 4 other books that I am digging into right now on rentals. I will definitely reach out if I have more questions. 

[Brett P Holmes]

Those are all great recommendations -- I would just add that if you're just getting started, don't try to figure out or do everything yourself.  My recommendation would be to interview and incorporate trustworthy experts to help like thorough inspectors and land use/zoning attorneys. Tell them that you're new and your plan and to explain everything to you.  Attorneys will point out risks that you haven't even considered.  You may spend more in the first few investments building a team and hiring away some of the key DD items, but you'll learn a lot and be able to make more cost effective decisions later (like whether to use them in the future and to what extent).  Better to make 10% return on your first deal and learn a lot than 30% return and miss out on things that will cost you later!

[Brad Kanouse]

@Brett P Holmes Great info.  there is alot to figure out at the beginning and can be a bit overwhelming but I am hoping that once I start gathering info and make a checklist it will help.  Thank you for your advice.