due diligence

5 Replies

Hey everyone. We were searching the site for any post that outlined the "due diligence" process and couldn't find anything that applied. Does anyone have a step by step process or form they use and are willing to share??? 

Thanks for reading

That's a pretty broad checklist....could you narrow down what exactly you're looking at buying? It's going to be nearly impossible to get a comprehensive answer as each property is going to be somewhat unique, and it will vary based on what your plans are. 

Meaning if I bought a home on septic vs sewer I'll probably have some different items I need to check out. If I'm buying a tenant occupied property I plan on flipping vs buy and hold I don't care about the seller's last two years of tax returns, though I might care about lease start and end dates and the terms. A Bank owned REO vs private seller will be different, and some of this will be regional. In FL where I buy there is no such thing as an oil tank let alone an in ground one, so that isn't a concern.

So if you can give some more specifics you'll get some better answers of what you need to put on your DD checklist. 

I agree with what everyone else has said, DD will be different for different types of investments as well as from property to property. Because there's so much diversity from market to market it might help to get in touch with a few local investor savvy realtors near you and see what they have to say. Most (good) agents are happy to help because a smart investor can mean more/easier business. They tend to know the local markets better and might also be able to point out potential pitfalls or perks.

Originally posted by @Craig Richardson:

I agree with what everyone else has said, DD will be different for different types of investments as well as from property to property. Because there's so much diversity from market to market it might help to get in touch with a few local investor savvy realtors near you and see what they have to say. Most (good) agents are happy to help because a smart investor can mean more/easier business. They tend to know the local markets better and might also be able to point out potential pitfalls or perks.

 I agree with Craig, local knowledge is always best, I was on the phone yesterday with an investor going to an auction of a house that I had sold as the broker a few years back, I knew the back story because my brother had owned the house prior, short story is he was going to be far more aggressive at the auction given the intel on the property, and we almost wholesaled it as I called a guy I knew that had been looking for a property, but as it goes he already had a contract on something and the bank ultimately took back the property at the auction, yesterday in the rain with several investors on hand ready to buy...I see opportunity all the time in several cross over marketplaces given being active as a full-time broker & appraiser...just my opinion, have a good day ! 

@Dana Brown  

"The Book on Flipping Houses" by J. Scott is an amazing book and I highly recommend it!!

Chapter Eleven is all about due diligence and the process of running your numbers to see if there is enough profit in the investment. This will help you to make a decision of if you are willing to accept that margin of profit. DD is a broad term meaning... do research on the property to make sure there aren't any hidden surprises that could arise and eat away your profits. For example:

termites, liens on the property that as the owner you are responsible for paying, if it was an estate sale what does the deed say and are you negotiating with all parties that need to be involved... the list goes on and on with different inspections and research.

In my mind a $25 investment in a book is worth it if it could save/make you thousands!!