In this article, I will share all the 40 proven real estate due diligence checklists you need to make your investment successful in the super competition real estate world. I will also share the period it will take to do those analyses in your local area and what you must keep in mind while doing all your due diligence. So that, your money don’t become a waste.
What is Real Estate Due Diligence?
Due diligence is a process of identifying the strength and weaknesses of a property and why you should buy that according to your investment criteria. Because sometimes, the seller will hide many things from you, and if you buy those things, you will face huge financial troubles near future.
The due diligence will help you identify all those hidden problems that most sellers don’t want you to know. Because if you know them, you will renegotiate the asking price and pay less money as you have to repair all the problems. The seller don’t want that. That is why he will hide all this data from you.
But if the seller is ready to disclose all the data and is an honest person, still do due diligence research for your own safety. That is the best investment tip I can give you. Do your own research, and never trust anyone while investing.
Real Estate Due Diligence Checklist
- Find the current rent roster with paid-to dates.
- Collect a list of all security deposits.
- All the mortgage payment information.
- Personal property list, if any.
- The detailed floor plan design.
- Information about the Insurance policy
- Collect all the info about the real estate agent with his work and reputation.
- Have a total maintenance and service agreement for the property.
- Demand all the tenant information like leases, ledger cards, applications, and smoke detector forms.
- List of vendors and utility companies and the account numbers.
- Get a statement of structural alteration that was made to the premises.
- Surveys and engineering documents, if available.
- Commission agreements with both parties.
- Rental or listing agreements, if any.
- Easement agreements, if any.
- All the development plans, including plans and specifications
- Collect all the architectural, structural, mechanical, electrical, and civil drawings.
- Governmental permits or zoning restrictions affect the development.
- Management contracts.
- All the tax bills.
- Property tax statements.
- Utility bills.
- Get the cash receipts and journals about the property.
- The capital expenditure records about the property, for the last five years.
- All the income and expense statements about the property for two years.
- All the financial statements.
- And the state and federal tax returns.
- Do an inspection in form and content reasonably satisfactory to the buyer.
- All other records and documents in Seller’s possession would be necessary or helpful to the ownership, operation, or maintenance of the property.
- Collect data about market surveys or studies of the area.
- All the construction budgets.
- Tenants profiles or surveys.
- All the work-order files.
- All the bank statements for two years show operating accounts for the property.
- Certificate of occupancy.
- Title abstract files.
- Get a copy of all surviving guarantees and warranties on the property.
- Phase 1 and 2 Environmental Audit if exists.
- Verify all the small details that seem like not a big deal.
- Do an overall review of the investment.
If you follow this real estate due diligence checklist and do your research accordingly, your investment will never fail. That is why you will save yourself from many financial disasters. As you know, real estate due diligence is the mother of all good luck.
Real Estate Due Diligence Period
Now let’s talk about the whole period of real estate due diligence, or how much time it takes to research and analyze a property to know if it is worth the investment.
Well, the more checklist you have, the more time and money it will take to do the research. On average, it takes about one month to get a result from your real estate due diligence checklist if the company you have hired is a reputable one.
But know if you don’t gather all that information within time, your deposit money becomes non-refundable. That is why get a good broker and a good team of professionals to conduct all these inspections and advise you on whether you should go forward. A real estate broker will make sure everything is done to the plan and keep you on track.
Only hire those who have done similar property research, as there are many different classes of real estate investors that need a different due diligence company. Not everyone is an expert in everything. That is why research them and make sure their fit your investment property.
So now, you have got an idea of what real estate due diligence checklist flows and how and how much time it will take to perform that due diligence in your local area. Hire a good company and do your research. Good luck.