| Do your due diligence when investing in real | | | | Do your initial exterior inspection. Walk |
| estate. You've heard that before, but what is | | | | around with pen and paper, and note anything |
| due diligence? A simple definition: "The | | | | unusual or in need of repair. Arrange for |
| investigation and verification of the details | | | | professional inspections where needed. Be |
| of a particular investment." Start the | | | | sure that the electrical and plumbing systems |
| process before the offer, but in the offer | | | | are up to date and meet current codes. |
| you also will want to include clauses that | | | | Estimate of how many years of use the roofing |
| allow you to have inspections done, look at | | | | has left, and look at driveways, landscaping, |
| certain documents, and review the books. | | | | and the condition of exterior paint. |
| | | | |
| Due Diligence | | | | Your due diligence should include an interior |
| | | | inspection. Meet some of the tenants if you |
| Due diligence should always include a look at | | | | can. Look for any problems you'll have to fix |
| the books. Review the last 24 month's income | | | | in the coming years. Watch for water damage |
| and expense statements, and watch for | | | | or fire damage, pest problems, and obvious |
| anything unusual, like expenses that are too | | | | "problem tenants," or "problem apartments." |
| low or income that seems higher than usual. | | | | Are there empty units that are listed as |
| Look at the rent roll, and investigate | | | | occupied? Get the necessary pest inspections |
| whether rents are over or under the market | | | | and safety inspections. Some Fire Marshalls |
| rates for the area you are in. Check the | | | | will do a free inspection to verify that the |
| payroll records if there are employees, and | | | | building meets current codes. |
| watch for surprises, like accrued vacation | | | | |
| time that you'll have to pay as the new | | | | Call local authorities. Ask about any zoning |
| owner. | | | | or encroachment issues, or permit problems. |
| | | | Have there been any fire code violations, and |
| Always verify income. You want to see rental | | | | were they fixed? |
| agreements signed by the tenants, as well as | | | | |
| rental histories, which might show if there | | | | It is usually best to use professional help |
| are any problem tenants or late payments | | | | when doing your due diligence. Your |
| still due. Documents for rental deposits | | | | accountant can decipher the books better than |
| should show amounts and where the deposits | | | | you, and notice anything that doesn't add up. |
| are (which bank). | | | | A lawyer can review your offer and other |
| | | | documents. She can also tell you what other |
| Look at the service contracts and agreements. | | | | things you should be doing. |
| Ask if they transfer, or if you are free to | | | | |
| change to better (possibly cheaper) services. | | | | Take notes. Do something about serious issues |
| Among others, you're looking for property | | | | (have them fixed or adjust your offer). Most |
| management, landscaping, snow plowing, pool | | | | problems you'll run into when buying income |
| cleaning service, and heating and cooling | | | | properties are not entirely unforeseeable. |
| system maintenance agreements. | | | | They can be avoided or resolved if you use |
| | | | your due diligence checklist diligently. |