Due diligence? How & What all should I be looking for?

Question

I keep hearing the term make sure you do your due diligence. I would assume that means no leans on the property. How do I find that info and what els should I be looking for?

Brian Price · Answer

@Nathan G.

Thank you for your advice. I just listened to a podcast about finding an agent with investor experience and I have reached out to someone in my area.

In the meantime, I want to learn myself because the seller just fired his realtor who would have made $40K on the deal. That now gives me some room to negotiate.

Make your money going in! Right!?!

Steve Morris · Answer

I keep hearing the term make sure you do your due diligence.

When I write a PSA for an apartment, I have 4 basic contingencies.  THey all need to be affirmatively waived to keep the deal alive:

1) Physical - Usually you get 30 days to get someone that knows the mechanics of a building and either accept the building as-is, ask for repairs or do a retrade (ie price adjust).

2) Books/records - Get 30 days AFTER you receive books and records to verify the income/expense numbers you based your price upon.

3) Title review - Usually 2 weeks AFTER you get a PTR (Prelim Title Report).  You're looking for things removed at close (eg Prop Tax due since counties usually lien on 1 Jul for taxes due 15 Nov) and things that survive (eg existing easements).

4) Financing - Usually 60 days after books/records.  This is you getting your loan and the lender funding the deal at satisfactory rate/terms.

Nathan Gesner · Answer

You should be using a REALTOR that understands investment property. They can answer these questions and do the work for you. Due diligence means you are doing ALL the research necessary to verify the investment is what you are expecting to purchase. It could be an inspection of the physical property. A review of an existing lease agreement. Rent roll for an apartment complex. Tax returns, liens, title insurance, etc.

The title insurance company will provide you with a lot of the information like evidence of ownership, liens, plat maps, easements, homeowner association, etc.

You would be wise to find a professional that can walk you through the purchase process. Buyer's agents are typically paid by the Seller, so you can use their expertise for free.