First Deal Due Diligence - What to do?

Question

Hey guys,

I got an email from a wholesaler about a property I'm interested in in Birmingham, AL and don't know where to start on due diligence.

It's a duplex, first side rented out and says they always pay on time in cash. Second side not rented, but the tenant on the first side is looking to rent both. It's in a C neighborhood, and says they need a new roof. I'm looking to buy and hold.

I would be able to buy it outright, so I wouldn't need to worry about a mortgage.. just taxes and insurance.

How do I verify the rent history with the current tenant? How do I get a copy of the lease they're currently under so I can see the terms? I can call a roofer to give me a quote, but beyond that, do I need to wait until it's under contract to get an inspection? How do I make sure the title is clear? Is there anything else I'm not thinking of?

Right now, the only thing I know to do is drive by it and call a roofer for a quote. Any and all help is appreciated! Thanks!

JD Martin · Answer

Title: title company does that.

Roof: Easy enough.

Inspection: have it inspected after you are under contract by a professional inspector.

Lease: landlord should have that if it's even written.

Deposit: Did the landlord collect one? You should get it when you close.

Tenant payment history: irrelevant. You should always buy with the idea of wanting/having to place your own tenants.

Your due diligence really starts on whether or not it's a good deal based on the property, the location, the rehab/maintenance required, and the reasonable rent price & ease expectation.

Maxwell Lee · Answer

JD pretty much covered it. Unless specified as a quitclaim deed, this should be a warranty transfer and title company will insure for clear title or you won't be able to close.

You would generally wait til it's under contract to get an inspection otherwise you'd be risking spending money on an inspection for a property that may not even be available. Having it under contract essentially "holds" the property for you while you perform your due diligence items that will cost some money. That said, in a wholesale transaction it is common for the purchase contract to state there are no inspection contingencies, which means you are risking your deposit to inspect after you have it under contract. So it's really up to you which path is the best approach.

Ask the seller for a copy of the lease. They may not give this to you until it's under contract but you can ask. Ask about the security deposit. And I would ask for rent rolls or payment history. Sure it may be made up or it may not matter in the end, but might as well have it if available.

Other things you could do before having it under contract...

Walk the property and use your own eyes to get an idea of what work needs to be done. Even if you are a newbie you can still see plenty. If you have a knowledgeable friend/trusted handyman to walk it with you even better. Look up permit history on the property to get an idea of big ticket items' install date. Find tax history and get insurance quotes (or at least a ballpark from people who have property in the area). Begin seeking out possible PMs and ask them their opinion on the neighborhood, ARV and rental comps. Perhaps a few other things you could do but this covers the basics.

Good luck!!

John Patton · Answer

Drive thru the neighborhood a couple of times before you pull the string about noon during the week. You may have to go there even with a management company. If you have an address just pm me and I will be glad to ride by it. Good luck JP

Chris T. · Answer

@Jessica Duckett

great advice from JD and Maxwell.

Make sure you use the BP calculator to run the numbers

https://www.biggerpockets.com/buy-and-hold-calcula...

Besides using a professional inspector, I would get 2-3 experienced (roofing, HVAC, electric, plumbing etc) contractors to walk the property with you at the same time. Pay them for their time if needed.

And research or call the local municipality to get familiar with landlord-tenant laws, find out if there are any building violations with this house. If it's your first rental, I would avoid a C neighborhood.

Most importantly, take your time to do due diligence. Don't feel pressured by the wholesaler to close the deal asap or pay the EM.

Good luck!

Rolanda Eldridge · Answer

@Jessica Duckett...If you decide to pass, I'm interested..Thx

Jessica Duckett · Answer

Thanks guys! That helped a lot!

First Deal Due Diligence - What to do?

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