I've heard many different versions of what they consider due diligence before they make an offer on a property and I'm confused as to what is considered responsible and appropriate.
For example, on a buy and hold, I've read where in order to determine a properties value an investor would need to find at least four comps, look at all the expenses for each comp, do a vertical analysis to determine each line items percent of GOI, then compare that to the subject property. We are assuming you already know title is clear, no liens, the sale price is at least 20% below ARV including any repairs as well as repair costs if any, the neighborhood is 70%> tenant occupied. What if it's a "hot deal" and the seller/wholesaler needs to close in 7 days. How do you pull off this feat? Whats the appropriate amount of due diligence (specifically).
Where does the diligence end? When is it past being efficient and become excessive?
my definition, is gain as much info you can, and use it to make a judgment call.
For me: satisfied with knowledge of condition of house. Make sure clear title. Make sure comfortable with financing options. Make sure you are happy with service provider.
I bought a mixed unit. I understand I had 70k+ of repairs and deferred maintenance to do. we are comfortable with it. And know if ---- hit the fan... I'm OK
Sure enough my 5 yr plan became a 5 wk plan.
We are OK, I addressed all issues bc although the issues all need addressed ahead of schedule. Not a surprise.
1 yr later, we are cash flowing.
In reverse. I have a client that I helped and provided with all the due diligence. Unfortunately, against my advise (and my former company's " costumers is always right" attitude). I get boo-hoo call every day. All issues I fore saw. But of course client conveniently forgot I advised. I don't even know how to help her anymore.
Due diligence is informatio. Like any information, it's a tool. Its how you use it.
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