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Investigative Real Estate Investing – Due Diligence
Due diligence in its more common usage refers to a voluntary investigation. As a real estate investor you must do the required and proper due diligence on a property before going to closing. In my opinion, you should view it as mandatory and not voluntary. And it is an investigation, so be a smart sleuth. Very, very important that you do the right amount of research and the proper due diligence before you buy a property. It’s simple stuff.
First, you need to double check the title, make sure there aren’t any other judgments, liens or encumbrances you weren’t aware of on that property. You will also need to verify the ARV, the After Repaired Value. You verify that with comps. If you’re unsure based on your own assumptions, get an appraisal. Get a termite inspection. Get a property inspection. Get a mold inspection. You certainly don’t want to pay too much for a property, especially if the comps are showing its’ value has decreased.
If you don’t do proper due diligence, then it’s your own fault. There’s nobody else to blame but you.
Another due diligence is get title insurance. You can’t be too careful. It’s cheap insurance to pay in case something goes wrong with the title down the road. Even if you have checked and double-checked the title, if an attorney doesn’t have the right verbiage in a deed or something like that happens you will be covered.
Do your due diligence ahead of time. Measure twice, cut once. Do your due diligence before you close. It’s a simple thing. It’s a simple checklist of what to follow and what to do before you bring money to the table whether it’s yours, a private investors or a mortgage company’s, you have to do your due diligence on the front end.
On the flip side, another angle to this is make sure you do your due diligence with a tenant buyer when you’re selling a property, before you put somebody into a home. It’s very, very important. And I am very guilty of this on too many occasions, but after awhile you start to learn. You start to get some scars on your back from all the arrows that get shot in it and you start to make adjustments and do things the right way. This entails doing background checks, credit checks and if necessary look at paystubs and bank statements. A serious tenant buyer has nothing to hide and will appreciate your thoroughness. You don’t want to risk anyone’s money particularly if you are providing seller financing to someone and you wouldn’t be doing anything different than any other mortgage broker or lender.
So, I’m trying to tell you these things from my own personal experience. Do your due diligence with a tenant buyer. Have a mortgage broker check their credit, or if you’re with the credit bureau, you check their credit. Check their ability to pay. Can they actually afford to make this payment? Do a background check. Do a skip trace check. Check all the adults that are going to be in the property. Check their tenant history, all of this stuff.
It’s up to you to prepare on the front end for what the worst that could possibly happen. It’s your job and your job alone to be the one who makes the final decision based on the due diligence that you’ve done or had done on whatever the situation is that you’re doing.
Just be smart about it and work on improving the quality of your due diligence.
Here’s a kick right into investigative investing. I’m providing all kinds of clues for you to use right from the beginning. Your first key is to click on this link:
www.freemakemoneygift.com/Invitation.html
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