We often talk about due diligence but what does it mean to you

[Account Closed]

Due diligence is an important part of real estate investing. I have invested in single family homes for years and have a good idea of what is involved.

What areas to you look st when in investing in a residential or commercial properties?

Please share why it is important to look at each area because I think sometimes new investors fail to see the importance of such things as location, condition, demographics, books and records, market saturation, supply & demand, cost of repairs, what to inspect, etc.

[Bill Gulley]

Good points Jesse, but due diligence to me is property specific and Charles was including generalized areas that certainly influence a buy decission, but, to me are issues that are considered as a business consideration. Demographics such as employment, average incomes, average home prices, rentals vs. owner occupied are all aspects that should be evaluated before you ever look at a property.

My due diligence is first property inspection, the condition and needed repairs, then to comps..what's it really worth in the market...then costs to repair to bring up to that market comp level,...then costs of the transaction and offered price.....then and before I make an offer.....what are the legal aspects of ownership? This is where it gets down to cracking the nut, is there a sewer comming through, any factories proposed down the street, any external obsolesence that has not been disclosed, rezonning issues...if I see several for sale signs in a neighborhood I'm concerned! Any school rezonning, is the neighborhood going to lose it's highly rate school and be changed to a less desirable district...any new tax issues? After that type of thing I'll look to title, construction done in the past six months or any work done on the property? If so, do you have lien waivers? Any liens of record, any easements that are obvious, but not filed?

Now there is a good one! ...Easements. Story- Looking at a corner commercial property that has a back alley to one street and homes behind the alley. There is a big RV parked in the back yard, an old one and the back neighbor has a double gate to the alley. The subject property has a vacant lot at the other end that adjoins the alley. OK, so how did the guy get that RV in ther and how does he get it out? He drives out the double gate across the alley onto the vacant lot and to the front street over the trail path that has been beaten down on the vacabnt lot. Looking at the building, its a great space to add on two more commercial spaces or kick the building around in an "L" shape and double the space! Ooops, maybe not! Is there an easement filed? Nope, ok, is there an easement,? Probably so! It's an easement by presription and adverse possession, the public, obvious and known use, without objection of the owner, with such use being continious over a period of time set by state statute. That neighbor can probably and effectively block any future building on that vacant lot by claiming the easement for the purpose of ingress and egress to his property. It has been used in the past, it is the only way he can get in and out, so after a period of time, and from time to time which meets continuious, he has driven that big RV (kinda hard to do that secretly) over the subject property as evidenced by the path, so....assume he has rights to it!

That's an example of due diligence, paying attention and looking for ways you can get the short end from something that is usually overlooked through the normal course of actions taken in a real estate transaction.

Bill,