The Due Diligence that Saved Me

My Due Diligence Saved Me!

Recently I sent out an email about a deal we were bidding on in Goldsboro, NC. This looked like a good deal on paper but we soon found out this wasn't the case. Here were the numbers just for reference:

Unpaid Principal Balance: $44,700
Last Paid Date: 2/1/2016
Existing Payment: $388.98
Fair Market Value: $69,500
Note Cost: $18,000

We had 7 days for our initial due diligence. We called the county and the township to verify taxes. We verified the buyer wasn't in Bankruptcy. We pulled a title report to ensure there were no title issues or outstanding liens and we had a realtor provide us a Comparative Market Analysis. There were a lot of moving parts to the final due diligence phase that were happening all at once. Everything was looking good. Our Realtor came back with a Fair Market Value of $69,000 which was right on target for what our initial due diligence had shown us. Great! Thankfully I only live about an hour from this property so I decided to go check it out myself and evaluate if there was any rehab needed. Boy am I glad I did. Now I love Realtors. I am one myself but for some realtors, occasionally if the client isn't in your city, things can get done in a sloppy manner. What I found out was that the realtor never left their office to perform this BPO. If they had, they would have realized that the whole neighborhood next to where this home was located was boarded up. The comps they provided were real comps but they were located in a much nicer neighborhood about 2 miles away, across the freeway, from where this property was located. So I called another realtor. Explained the situation and made she sure sent time-stamped photos of the house and the comparables. Guess what happened to the value. It came in at $22,000! Our partners in this deal wouldn't have been happy to find out that A) They paid 81% of FMV 2) that they wouldn't have been able to recoup the money from the deal and 3) that we relied on unverified information to accomplish the deal.

This is the reason due diligence is so important. It's not enough to do your initial due diligence and never verify anything. It's also not enough to take anyone's word for it. Verify, Verify and Verify again. We always have multiple people check our properties. If I didn't live so close to this asset I would have sent out a company like We Go Look on top of the realtor to take pictures of the asset as well as pictures of the comparables. From now on we will request Comparables from not 1 realtor but 3! You can't ever be too safe when you're doing due diligence.

What are some things you do to ensure your properties are truly good investments before you buy them?