Due Diligence for Investment Property Selection
It is important to understand the factors that control and affect the market that you intend to enter. The purpose of this topic is so that you have a reasonably good idea of the area and property you are thinking of buying so that you can make a good, informed purchase decision. It is not that hard but does take a little time. However, don’t fall into the trap of analysis paralysis. You can overanalyze to the point of never taking action. That is not the intent of this chapter.
All investment property purchases need to have due diligence conducted prior to the purchase. To develop a systematic approach for due diligence, asking the following questions is highly recommended:
Property Management
What is the vacancy factor?
What is the economic rent?
How long will it take to rent?(estimated)
Economic Area of Influence
What are the guiding economic factors that drive the value?
What is the sustainable source of economic growth in the area?
Who are the potential tenants, i.e. high tech, professional, blue collar, etc?
Demographics
What has attracted the prospective tenants to this area? (job growth, retirement)
Is this a resort community or a stable sustaining community?
Are your tenants students; singles; families w/children?
Analysis of Income/Expenses
Follow-up on selected strategy for investing
Determine your property analysis indicators
Strategy for increasing income/ decreasing expenses.
Appeal of Property
General feeling about the area
Convenient driving distances to work/school/recreation
Possibly family oriented
Due Diligence Checklist
Here is a list of things you will want to know before signing a purchase agreement. Not all of the items will be pertinent to every property. If you have questions, don’t hesitate to call on professionals to help you. This is an important step in your purchase decision.
1. Current rent roster with paid to dates
2. List of security deposits
3. Mortgage payment information
4. Personal property list
5. Floor plans
6. Insurance policy and agent information
7. Maintenance and service agreements
8. Tenant information: leases, ledgers cards, applications, smoke detector forms
9. List of vendors and utility companies, including account numbers
10. A statement of structural alterations made to the premises
11. Surveys and engineering documents
12. Commission agreements
13. Rental or listing agreements
14. Easement agreements
15. Development plans, all plans and drawings
16. Governmental permits or zoning restrictions
17. Management contracts
18. Tax bills and property tax statements
19. Utility bills
20. Cash receipts and disbursement journals for property
21. Capital expenditures for the last 5 years
22. Income and expense statements for two years
23. Financial statements and tax returns for the property
24. Termite inspection reasonably acceptable to the buyer
25. All other records helpful to the ownership of the property
26. Market surveys or area studies
27. Construction budgets or actuals
28. Tenant profiles
29. Work order files
30. Bank statements for operating accounts
31. Certificates of occupancy
32. Title abstract
33. Copies of surviving guarantees and warranties
34. Phase I environmental audit
Enjoy your investing and do you DUE DILIGENCE!
By: Ellis San Jose
About the Author:
© Ellis SanJose, 2007 http://www.networthu.com . All rights reserved.
ABOUT: Find out how two historically profitable markets are joining to create millions. Real Estate investing + Network Marketing. Now is your chance to learn from the pros. For more information go to http://www.networthu.com
Ellis began learning about real estate investing at a very early age. Growing up in Southern California, his father taught him the skills of rehabbing & renting properties. While attending college, Ellis worked for a partnership group that was a major real estate player in Los Angeles County during the 1980’s. They specialized in purchasing foreclosures at the courthouse steps. Ellis was instrumental in their success, by growing their portfolio from 10 properties to 200 in three years. In 1994, he changed careers & became a licensed securities broker. Ellis has devoted his time investing in many types of distressed assets, single family homes, commercial properties, & non-performing trust deeds. He has been involved in over 60 real estate transactions totaling over $30 million dollars.