The Importance of Due Diligence and How It Can Save You Thousands.
Many real estate transaction can at first be deemed as “too good to be true.” Buyers and the agents or brokers they hire to facilitate the deal often get excited about an impending deal if the numbers look to be in their favor.
The harsh reality is that some impending transactions may hold considerable disadvantages not clearly detailed by the seller. An example could include searching through the numbers and uncovering that lease contracts are due for renewal, meeting tenants, and having tenants reveal that every occupied unit is planning on moving to new buildings. This means that a potential buyer could be purchasing a property that would be entirely vacant just months after taking control. Clearly, this is not a wise investment decision.
1) Third Party Confirmations: Any financial information received by the seller or seller’s agent, should be confirmed with a third party to determine validity. Third parties commonly used for this kind of task in real estate include CPAs, insurance companies, banks, vendors, and governmental agencies.
2) Analysis of Expense Items: For expense items which are not fixed, analyze the cost to determine its true cost to you as the new owner. Examples of expense items which are not fixed include insurance premiums, property taxes, management fees, etc.
3) Focus on the Big Stuff: As you are going through the financial due diligence process, keep in mind that some numbers are more important than others. Spend the time to analyze and test the amounts that will impact your decision the most. If there is an elephant in the room, find it.
With all of this in mind, it is crucial to involve an expert who is trained and experienced in the critical due diligence process, much like the brokers at DMC Real Estate & Investments.