Who pays for Due Diligence?

3 Replies

Good morning! I've located the first multi family property I would like to purchase. The property has 6 mobile homes and one 2-family home.  I can purchase the home at a 20% discount of the value, and I have $20,000 to put down as a down payment. My question is this, how do I pay for all the due diligence ie the attorneys fees, survey, sewage tank inspections, etc. I could just put it all on a credit card and try to pay it off over the next few months with my personal savings, but I could also try to either borrow or add it on to the purchase price. What do you all think? 

Most of these fees need to be paid on the spot.  Even if you can defer them to closing, they will add to the amount of cash you need to bring to closing.  Unlikely you'll be able to increase the price and get the seller to commit to paying them.  Their risk would be the deal doesn't close and they're out the money.  That's your risk, too, but that's part of buying real estate.

You won’t be able to “add it to the purchase price” , per say. If you buy, you could have the seller pay for a portion of closing costs which would reduce your cash out of pocket at closing.
You realize you’ll have probably 3-6% closing cost and pre paids.
Due diligence costs are sort of like buying gas to get to work, just an ongoing nonreimbursed expense.

Thank you both for your responses, they  helped a lot. It's the silly little questions like this that drive me nuts! Wayne, I liked the gasoline analogy, that was helpful. What were you referring to when  you mentioned the 3-6% closing cost and prepaids?  Also, I noticed you're in Florida (I am outside Pensacola). I have a unique situation wherein the property is owned by 5 siblings and they all agreed they want the oldest sibling to sign everything on their behalf, so they want to complete a power of attorney form to give him the right to sign. I am having trouble locating a form for this, although I have found plenty for one person. I contacted an attorney and he will do it for a $1,000 retainer as well as $250 per hour for the legal work involved. Do you think that sounds like a fair price? Thanks