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