The Second Rule of Thumb and Negotiating Due Diligence

When you make an offer on a property, it is very important to make sure that you negotiate the terms and conditions of your offer. As we already discussed there are three key areas in a contract, one of which is the terms and conditions of the offer. You need to make sure that you have some way to verify the information that the seller gives to you without losing your earnest money while doing so.

The expression trust but verify is very important when investing hundreds of thousands of dollars into a property. Especially if you are bringing in investors and you are spending their money. The seller may tell you that they have a 95% occupancy rate, but your research indicates that they only have a 50% occupancy rate. This makes a big difference in the upside potential of the property as well as the current value of the property.

They may tell you what the gross operating income is for the property but neglect to mention what all of the costs associated with the property are. Your job is to figure out what your expenses are going to be so that you can come up with an accurate Net Operating Income. You cannot create an accurate picture of the property without accurate numbers and accurate information about the property and the area.

You also need time to research the area surrounding the property. What is the likelihood of another self-storage property being built or converted between you and your target audience? How do you know if this property is even in the right location? You can’t unless you do your research.

While you can do a lot of the preliminary research, the best way to find out all the ins and outs is by having a feasibility study done. This allows a fresh set of eyes to look at your property and make sure that it is exactly what you hope it is.

Make sure that you negotiate enough time to do your due diligence. Make sure that you have the right people on your team to do the right due diligence. As always, happy investing.