Due Deligence Part 1

After we selected the properties we liked, we started to perform actual due deligence for the list of the properties we would like to consider. We did:

1. Cash flow Analysis - Annual net cash flow, ROI, Cash on Cash returns, Cap rate

2. Comparable price of the other properties near the subject properties

First, we used excel spreadsheet to calculate the investment performance of the each property we were interested. This includes net annual cash flow, ROI, Cash on cash return, cap rate, debt coverage ratio and so on. And we list all those information in sequence so that we can compare which properties are performing better than the others. We screened out several properties that are not yielding very well.

Second, we also compared screened properties with other comparable properties in the area in order to assess if market value of the comparable properites are higher or almost same as properties we may invest. Through this process, we screened several properties that is below market value of the comparable properties. After this process, we chose two properties that satisfy both 1st and 2nd requirements.

When I said to Cindy that we will buy those two properties based on those assessment. She told me that we should go to Memphis to see the actual properties. I thought it was not really necessary until we actually decided to go there. I fully realized that physical due deligence of the properties is one of the most important things investors have to do...