Posts Tagged ‘Zoning’

Due Diligence – an Investor Necessity

You need to do your due diligence when investing in real estate. What is due diligence? Here is a simple definition: “The investigation and verification of the details of a particular investment.” You can start this process before making an offer, but in the offer you also normally include clauses that allow you to have inspections done, review the books and look at certain documents.

Due Diligence Guidelines

Your due diligence should always include a look into the books and records. Look at the last 24 months income and expense statements, and watch for anything unusual, like expenses that are too low or income that seems high. Review the rent roll, and investigate whether rents are over or under the market rates for the area. You need to see the payroll records if there are employees. Look for surprises, like accrued vacation time that you’ll have to pay.

Verify income. There should be rental agreements signed by the tenants, as well as rental histories, which might show if there are any problem tenants or late payments. Rental deposit documents should show amounts and where the deposits are kept.

Examine service contracts and agreements. Do they transfer, or are you free to seek better deals? These could include property management agreements, landscaping, snow plowing, pool cleaning service, and heating and cooling system maintenance agreements.

Walk around with pen and paper for your initial exterior inspection. Note anything unusual or in need of repair. Get professional inspections, if necessary. Verify that the electrical and plumbing systems are up to date and meet current codes. You may also want an estimate of how many years of use the roofing has left. Look at driveways, landscaping, and the condition of exterior paint.

Due diligence needs to include an interior inspection. Learn about the place, the tenants, and any problems you’ll have to fix in the coming years. Look for water or fire damage, pest problems, and obvious “problem tenants.” Watch for empty apartments that are listed as occupied. Use professionals as needed for pest inspections, safety inspections, and such. The local Fire Marshall may do a free inspection to verify that the building meets current codes.

Call local authorities to see if there are zoning or encroachment issues, or permit problems. Were there been any fire code violations? Were they corrected?

Get some professional help when doing your due diligence. An accountant can decipher the books and notice any problems. A lawyer will not only review your offer and other documents, but can also tell you what other things you should be doing.

Always take notes, and do something about serious issues (have them fixed, adjust your offer, etc.). Usually the problems that investors run into when buying income properties are not unforeseeable. Most of them can be avoided or resolved if you work through your due diligence checklist.

Steve Gillman

Copyright Steve Gillman. See the page: Due Diligence Checklist for a good checklist, and visit the home page for a free real estate investing course: http://www.HousesUnderFiftyThousand.com

Real Estate Investors – Due Diligence Is The Way To Protect Yourself!

Whether you are a new or experienced Real Estate Investor, one of the first things you will learn is to always do your own due diligence. Well what exactly does this mean?

Doing your own due diligence means taking the time to learn, study, review, check-out, and investigate a certain business or deal prior to your commitment to purchase, in order to make sure the business (or deal) is everything that you thought it was.

When it comes to investing in Real Estate, due diligence is used in several different ways. You will often see the term due diligence used when analyzing a deal or a property (again, prior to purchase). This will include not only the renovation work that needs to be done but the costs of the materials and labor of the renovations as well.

Due diligence includes making sure you have used the necessary tools to gather comparables (comps) in order to determine the fair market price or after repair value. Other items on your list include making sure you are fully aware of any current or past tax or title issues, as well as knowing about the current zoning, floodplains, easements, etc.

Further due diligence is required for landlords who are purchasing a property to buy and hold especially if those properties are already occupied. In this case, due diligence will include inspecting not only the properties themselves but the current leases, rent rolls, and security deposits. If applicable governmental such as section 8 approval certificates may have to be looked into as well.

One important issue that many new Real Estate Investors seem to forget about is the importance of doing your own due diligence when it comes to working with other Real Estate Investors, no matter how friendly or experienced they are.

One of the benefits that the REI for Newbies Insider’s Club members have is the ability to email me with any and all questions that they have. I recently received an email from a new real estate investor who was really excited about the possibility of finally purchasing his first rehab. He found the property through another investor who had too many so he was unloading some of them. Turns out that after all was said and done this would have been a terrible deal for a new real estate investor.

The numbers that the experienced investor provided to the newbie were simply not entirely on the up and up. While I am sure that he meant no harm, this could have ended up being a really big problem for the new investor.

You see the experienced investor told the new investor that he could be in and out, meaning the property could be ready for market in less than 4 weeks. But what he failed to remember was that the experienced investor already had his team assembled while the new investor was starting totally from scratch. The new investor had to first start with finding contractors and getting estimates.

Not only that, but the experienced investor had his real estate license so his costs to resell the property were not going to be as high as the new investor who is not licensed. Overall, the numbers were just too tight for someone who was brand new. Luckily the new investor took a step back and avoided being a motivated buyer.

By the way, I have seen many experienced investors specifically say that they have an extra property that would not be good for a newbie. Generally speaking this is the type of experienced investor circle that newbie investors want to become a part of.

The bottom line is that all Real Estate Investors, no matter how experienced or not, need to do his/her own due diligence no matter where or who they get their leads from. Always remember that no one is going to protect your business or your potential profits like you will.

Chris Parks is an Entrepreneur & Real Estate Investor who created Real Estate Investing for Newbies to teach and assist new Real Estate Investors in a step-by-step and easy-to-understand manner. Get Your Free 7-Day E-Course Here: http://www.REIforNewbies.com
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