Questions about Due Diligence

2 Replies

Hey guys, I am having trouble understanding what what exactly goes into the due diligence process  of a property. What do you guys do for your personal due diligence and where do you start? I there some sort of checklist you follow as a guideline? What is the actionable process? Is it different based on the different types of properties? What is the most important information you are after, and how do you get it?

Thanks for your help guys!

What are you considering for your due diligence? Rental? flip? 

My first due diligence is financial! What are all of the costs associated with owning the property. gather and verify all figures. pull up tax bill, get insurance quotes from insurer. what interest rates should I expect, what loan products will I use on the property. what down payment will i need. Due extensive research on rent rates and validate apples to apples comparison. plug these into a known calculator and if it meets my criteria for cashflow and cash on cash return. If it passes muster, I move on to analyze other factors. If not, I move on to the next deal. No emotions needed. Avoid fudging the numbers to make it look like a deal if its not with your original figures.

what are vacancy rates, neighborhood, tenant applicant types, school quality etc. Does it still work? keep going.

Visit property, do walkthrough and verify the MLS listing features are what they said they were. maybe there is a bonus bedroom agent didnt know about (like the last unit I bought) or maybe one bedroom cant really be a legal bedroom. Take a list of all obvious repairs. try to determine an estimate for total repairs or have or pay someone like a con tractor to help you estimate those repairs. Can the repairs be done quickly or do they represent a major reno (if so avoid major projects for your first renovation and start with low-complexity projects). If flip, can you get the property for at least 70% after repair value - required repairs? for rental, does the cashflow divided by intial up front investment return make it worth it to you?

If so, I proceed to make an offer.

Then I make an offer with inspection contingency. Get it professionally inspected, re-verify all repair costs, get bids to make repairs, re-check all of my financial due diligence, close, execute my plan. Good luck!

Due diligence:

My first course of Due Diligence includes Calculating Return :

1. Property Condition/Repairs Needed - Cost Associated

2. Comps in the area for Estimated ARV

3. Exit Strategies Calculated (Multiple are Good)

4. Double check my number with another & have a Contractor review the property

5. Make my offer

This is just the start. There are so many different aspects of Due Diligence. Luckily we have BiggerPockets, right?

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