After 45 + years investing in, purchasing and selling notes and real property; structuring “deals”, running investment funds and syndications, I have observed that many (most) investors both hesitate too long gathering too much information before making an offer AND do not do enough investigation, analysis and due diligence before they finalize a purchase.

Seems like opposites, right?  So how can an investor do BOTH too much investigation and at the same time too little?  I will explain below.

First, let me state that I’m often guilty of exactly this thing.  Not so much on the too little side, but on the too much.  So, it’s something I always have to watch out for, and self correct.

Most investors, myself included, want too much information BEFORE making an offer to purchase.  We want copies of leases and spend hours combing through the intricate details; we want to know the seller’s  “motivation”, we want to know long term economic forecasts for the community, the state, the U.S.  the world.  We want to know exactly what interest rate we’ll pay on a mortgage, what the water bill will be, if the property next door is thinking of selling, and everything else that has even marginal relevance.  The problem is that we’re wasting valuable time BEFORE we even know if a deal is a possibility. 

There are only so many PRODUCTIVE hours each person is capable of producing.  So I don’t want to spend 5 or 10 of those hours chasing a deal that has little or no chance of coming to fruition.  The answer is to do a very modest amount of investigation if you come across a property you’re interesting or may be interested in owning.  Anywhere from 10 minutes to one hour.  Do a GOOGLE search, get the tax information, read through any relevant documents the seller has provided.  And the. MAKE AN OFFER.  You want to make a “soft” offer.  This could be anything from a Letter of Intent as a prelude to a purchase contract to an actual purchase contract with an OPTION to purchase for a small option price subject to a defined time due diligence period.  Make the offer an offer that’ represents a good deal for YOU.  

The seller’s response to your offer will tell you your chances of closimg the deal on terms making it a good investment, and consequently how much time you should spend on due diligence.  If the seller rejects your offer outright, then you just saved a lot of valuable time by NOT having spent hours on a deal with no chance of completion.  If the seller accepts your offer than you do the full due diligence investigation during the option period.  You’ll probably come across various “negatives”, this may require, or may provide an opportunity for negotiating a price reduction in the final contract.  Or perhaps most likely, the seller will counter your offer with a higher price or different “terms”.  If there’s sufficient evidence to conclude that a deal can be made, it may be necessary to go through another round, or even two of offer - counter offer before reaching an agreeable price. 

I was recently actively looking to add to my real estate portfolio.  I looked at 18 properties for sale.  I made two verbal offers and three written offers, and closed on one of the properties approximately three months after I initiated the property search.  It was only AFTER I made an offer that I did anything more than superficial due diligence.  Absolutely no sense wasting 10 hours investigating property of the 4 offers that wouldn’t result in a deal.  If you want to buy property, you’ve got to MAKE AN OFFER.