Everything You Ever Wanted to Know About Due Diligence
Over at BiggerPockets' main blog, I have written a 5000-word essay called "The Ultimate Guide to Due Diligence," that covers virtually everything you (or at least I) could want to know about due diligence on real estate investments. First and foremost, I list out the overall checklist you'll need:
- "Pre-Offer Due Diligence
- Area Analysis
- Value and Financial Estimate
- Rehab Estimate
- Post-Acceptance Due Diligence
- Physical Due Diligence
- Financial Due Diligence
- Legal Due Diligence
- Inspections
- Retrading (if necessary)
- Final Decision and Walking Away (if necessary)"
The importance of checklists really can't be overstated. As (a book I highly recommend reading) makes clear, if checklists are adopted and used, things don't get missed. On the other hand, if you just "go with the flow," you will almost certainly miss key steps and details time and time again. And these misses will cost you badly; either by buying properties with enormous costs you didn't foresee, or missing out on opportunities to negotiate the price lower.
Another reason it's so important to have a checklist is because due diligence is, well, kind of boring. It's not the fun, sexy part of real estate gurus talk about. But as I note in my piece,
"While it can be arduous, following the steps outlined below will help you avoid any unwanted surprises and greatly increase your confidence in the investment. And what do new investors need more than confidence?"
It's boring, but it's oh-so-important both for your bottom line and your confidence. Trust me folks, thorough due diligence helps you sleep at night. Don't neglect it!
And if you want a much more in depth overview of the entire process, please check out my long essay on the subject.
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