ue diligence is a crucial diligence process before you even
part of real estate make an offer. You might do your
investing. A seller may own walk-through inspection of a
claim that all units in his property, for example. In
building are rented, but your addition, your offer will
physical inspection could reveal normally have provisions allowing
an empty one. A look at the books for you to review (and approve)
could show that his reported certain records, and have certain
income included the one-time sale inspections done before you close
of ten used washing machines. on the property.
That $900 of extra income, if not
subtracted out, would There is normally a deadline in
artificially inflate the value of the offer, by which time you need
the property by $11,250, based on to complete your due diligence
a capitalization rate of .08. and approve of the results. If
this deadline passes without your
Simply put, due diligence is your canceling the offer or notifying
investigation of the details of a the seller of problems you have
potential investment. The point found, the legal presumption is
is to avoid unpleasant surprises. that you are satisfied with what
You need to know what the real you found, and committed to close
numbers are and what you are according to the terms of the
really getting into. This is offer.
especially important with income
properties, because their are so Due Diligence - What You Are
many ways that they can Looking For
"surprise" you.
Proper due diligence should start
When investing in real estate with a good due diligence
you'll often start the due checklist (more on that in a
moment). It is just too easy to You will of course make a look at
forget something without one. the "books" a part of the offer.
You need to see how that net
What are you looking for? You can income was arrived at. You also
see the property when you walk are looking to see if the
through it, and the seller can expenses recorded make sense. You
tell you all the financial may need the help of your
details. The problem is that accountant. On the other hand,
sellers may exaggerate things, you can certainly see that there
fail to mention things or just is a problem if no expenditures
lie. Your goal is to verify are listed for snow-plowing of an
everything the seller says about apartment building parking lot,
the property, and find any and you are in Minnesota.
potential problems.
Bottom line? Play it safe - do
For example, you will want to your homework. You want to look
look at the property closely, and at the physical property, the
have professional inspections service contracts (landscape
done if you need them. Often companies, cable TV, etc.) that
sellers will put off necessary you may be obligated to, the
repairs prior to selling. This rental agreements, the legal
lowers expenses, which increases compliance issues, and the
the net income - which makes the statements of income and
property appear to be worth more expenses. Each of these areas has
(income properties are valued its own elements, so use a good
primarily according to the net checklist when doing your due
income they produce). diligence.
About the Author:
Steve Gillman has invested in real estate for years. To learn more, go get your free real estate investing course at: http://www.MakeThatOffer.com
Read more articles by:
Steve Gillman
Article Source: www.iSnare.com 
