Real Estate Deal Analysis & Advice

Tips to Save Money and Time When Doing Due Diligence for Your Real Estate Deals

Expertise: Business Management, Real Estate Investing Basics, Personal Finance, Personal Development, Real Estate News & Commentary, Mortgages & Creative Financing
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Save Money and Time

With the changes in the real estate market in recent years, it seems like “deals” are all around us…and for the most part, they are. There is no doubt that this is a great time to invest in real estate.  It is definitely true that we are seeing a much higher percentage of real estate opportunities that we have not seen in many, many years.  However, this is not to say that we should feel overly comfortable investing in what “appears” to be good deals and skip the due diligence process altogether.

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Some of you may already know there are several major categories which must be addressed in the due diligence process when deciding between your investment options. Some of those include environmental impact studies, building inspections, lease/contract agreements, etc.

Before you get overwhelmed by the long list of items to look for in the due diligence process, take a deep breath…You do not need to be the person doing the grunt work of the due diligence process! Actually, unless you are an expert in one of the above areas, I do not recommend that you perform the due diligence tasks yourself. Rather, there are professionals in these specialties areas that you can leverage to help you to perform the due diligence needed to make sound real estate investment decisions.

As a CPA and real estate investor, I have done quite a bit of due diligence on real estate properties for my own investments and for my clients. I have to tell you that for my personal investment properties that I have invested time and resources to the due diligence process, it has definitely saved me tons of money over the years. Due diligence has allowed me to weed out a lot of really bad investment “opportunities” that have come across my table.

There are varying levels of due diligence that are recommended depending on some of the following factors: the type of property that you are purchasing, how you will take ownership of the property, and how much money you want to invest, to name a few. Simply put, due diligence should be a cost/benefit analysis just as with anything you do in business. The cost/benefit analysis boils down into two simple questions:

  1. What is the cost in terms of time and money to perform the due diligence? and
  2. How much money do I stand to make or lose on this particular real estate deal?

The ultimate goal of performing due diligence on the investment under consideration is to be able to make an informed decision on the following question:

Is this really a good deal for me to invest in?

As you may know, the due diligence process can be a very simple and straightforward process, or it can be a very involved and complex process…depending on some underlying factors as mentioned earlier..  In this article, I want to share with you a few tips to help you save some time and money in performing financial due diligence for your investments.

Understand the WHO Before the WHAT

Before analyzing the details of a specific investment, we encourage you to find out WHO are the individuals behind the investment deal. The founders’ experience, integrity, and long-term vision are often imperative to the success of your investment. Don’t Waste Your Time Not all information is created equal. As you review the financials, take a look at the one or two items that will either make or break the deal. If there is an 800-LB Gorilla in the room, address that issue first before moving on to the other items within the investment. If those key factors cannot work, then move on to the next investment!

Knowing the Difference

When doing financial due diligence, it is important to understand the difference between Actual vs. Projected performance. Actual activities can be verified accurately in the due diligence process. Projected activities often involve subjective forecasts which may not be currently verifiable. Much more weight should be put on actual rather than projected activities.

Does it Really Exist?

When confirming income items such as rents and lease amounts, we are typically looking to confirm the existence of these sources and the accuracy of the amounts. Comparing them to external sources such as bank statements, rent receipts, contracts, and agreements may provide that assurance in the due diligence process.

Do We Know All There is to Know?

In addition to knowing that all the income sources as reported actually exist, we also want to be aware of all the expenses and liabilities associated with a prospective investment. A review of financial statements, legal files, and correspondences may uncover any potential outstanding or pending liabilities associated with a particular investment. Also, a comparison of the financial statements against industry or market benchmarks often will reveal any understatement of expenses or liabilities.

As we discussed previously, due diligence can sometimes be an extensive process which may require the expertise of outside advisors and professionals. Qualified professionals can perform rigorous analysis and testing procedures that provide you, the investor, with reliable information about the impending real estate transaction.

Armed with this knowledge, you can make well-informed decisions regarding your real estate transactions and sometimes even have the potential basis for a renegotiation of the final purchase price or terms of the transaction!

Photo Credit: ? SUMAYAH © ²º¹³

Amanda is a CPA specializing in tax strategies for real estate, self-directed investing, and individual tax planning with over 18 years’ experience. She is also a real estate investor of over 10 years with a focus on long-term hold residential and multi-family assets across multiple states. Formerly a tax advisor at the prestigious accounting firm Deloitte in the Lead Tax Group, focusing on tax strategies for the real estate industry and high net worth individuals, and at an international Fortune 500 Company in the high-tech industry in the Corporate Tax department, Amanda’s goal is to help investors with strategies designed to supercharge their wealth building. Amanda’s highly rated book Tax Strategies for the Savvy Real Estate Investor is amongst Amazon’s best seller list. A frequent contributor, speaker, and educator to some of the nation’s top investment and self-directed IRA companies, Amanda has been featured in prominent publications including Money Magazine,, and Amanda was a speaker at Talks at Google and is a 40 under 40 honoree by CPA Practice Advisor, showcased amongst the best and brightest talent in the accounting profession. Her firm Keystone CPA, Inc. was awarded a two-time winner of the Top CPA of Orange County Award by OC Metro Magazine. She is certified by the CA State Board of Accountancy and is a member of the prestigious American Institute of Certified Public Accountants (AICPA) with clients across the nation.

    Ian Kuchman
    Replied about 6 years ago
    Home Inspectors are often a part of my due diligence that typically pays for itself. They may cost $300, but they will give you enough negotiating power at the table to pay for itself and some.
    Replied almost 6 years ago
    Nice article. It is very helpful to someone like me.
    L C Mincey Real Estate Investor from Elk Grove, California
    Replied over 4 years ago
    I am reviewing the possibility of purchasing property in Cleveland, Ohio and in view of the due diligence period I am seeking assistance on obtaining a Home Inspection and securing a contractor to give me a bid on the property for potential REHAB. Can anyone provide any recommendations for the Cleveland, OH area.?