Due Diligence. Not familiar? Well you better start NOW!

[Kyle Gregg]

I have been discovering the true essence of Due Diligence the past two weeks with the hunt for my first multi family property. I have picked up on figuring out all the numbers, researching potential rents, tenant demographics, location, and many other things that can be done behind a computer. As for a newbie, I think im catching on pretty quick but today i learned by first huge lesson. 

I have been hunting for my first multi family property financed though a 203k, and i thought i found a diamond in the rough! Located in Baltimore County, side by side duplex both a 3/1, potential rents of $1200 each, seller owns free and clear, one side rehabbed the other not...sounds good right?

I did all the numbers, reached out to my agent to get be in and to my lender to get the ball rolling on the 203k. I visited the property twice and everything seemed to jive. So, I brought in a contractor and a HUD consultant to walk the property with me. Rehabbed side only needed to be dressed up. We walk over to the unrehabbed side and into the basement. Right then and there, we knew it was time to run for the hills.

A solid 8" of water in the basement from a large crack in the foundation. The basement was bone dry during my last visit but it has been raining a LOT ever since. 

Afterwards, i ran into the net door neighbor who had the inside scoop on the sellers situation. She told me the owner only bought the property less than 6 months ago and was an investor himself. The house has also been listed for sale for several of those months. I WONDER WHY. 

I guess a long story long, DUE YOUR DUE DILIGENCE, get off the computer and get in these properties. Get out and talk to neighbors, make multiple visits to any potential properties, and just be active. Seeing this property has opened my eyes and made me realize how important it is do your due diligence. If you dont, it WILL cost you money in some way or another. 

[Ned Carey]

Yes

When you first mentioned the property you didn't even mention the price. To me - Nothing can possibly sound good without a price, or at least some indication of motivation. At any given time there are thousands of properties for sale. Most would make a lousy RE investment. Why should I have any interest in a property unless there is an indication I may potentially get a bargain

Now to the next point. Severe distress. Now that is an indication that there may be a bargain available. You now have a serious negotiating point. You also have no Competition. No one else is going to be interested

Now it is possible your highest offer might be "Tell me how much you can pay me to take this off your hands?" But I would still make an offer no matter how silly or low it sounds. (assuming that you can figure a cost to repair the problem. Would filling the basement with concrete fix it?)