Probably one of the best skills to learn — and a way to really reduce risk — is to become proficient at not only knowing what data to trust, but also verifying that information.<\/p>\n
Let\u2019s face it: The most money that\u2019s made in investing usually comes down to whoever\u2019s best at due diligence and to whoever\u2019s the most creative on the exit. That\u2019s why we often hear people say, \u201cYou make your money on the buy.\u201d<\/p>\n
Even when you buy a car, it\u2019s probably good to get a CARFAX report, run it through AAA, or at least get your local mechanic to check things out.<\/p>\n
So, whether you\u2019re buying an apartment complex, a note, or doing a simple rehab on a flip, our decision making is only as good as our information.<\/p>\n
Let\u2019s start with a simple rental property. The seller or real\u00a0estate agents\u00a0tell us what it\u2019s worth. We run our numbers. We look at the seller\u2019s motivation, market values, market rents, location, and needed repairs.<\/p>\n
We make a decision, pull the trigger, and then it comes to financing, where either our hard money lender or a traditional bank starts their due diligence process, which for many of us is our due diligence process.<\/p>\n
Sure, we can send out our home inspector to verify condition, but then the bank requires most other things. Not only do they perform due diligence on us for things like our credit, our job history, our residents, our backgrounds, our bank accounts, and even whether we have child support, they also verify title (taxes and liens), condition, value (through an appraisal), flood maps, termites, and even past insurance claims. It\u2019s pretty amazing all that they look at.<\/p>\n
Although I don\u2019t live too far from Lancaster, Pennsylvania, where the Amish buy properties on a handshake, I can tell you that it\u2019s definitely much different today with the banks. It\u2019s more like they don\u2019t trust anyone or anything, and they verify everything.<\/p>\n