Invest Home Pro - Due Diligence
Admin 782 18 Dec, 2015

Invest Home Pro - Due Diligence

Checklist: Things to Consider When Doing Your Due Diligence

In any business endeavor, doing your due diligence is the cornerstone of making sound decisions.

In real estate investing particularly, doing your due diligence is the only acceptable way of getting solid actionable information that can become the basis of your decision to either do a deal or keep off of it.

So, how should you do your due diligence when planning to invest in real estate? Here’s a checklist you can use when doing your due diligence:

1. Get Comps – get comps of for sale properties, along with active and pending sales, in the area (about .5 to 1 mile radius) within the last 3-6 months. This will give you an immediate idea on how a deal measures up to others with respect to value. You may also want to get comps for the last 3, 5 or even 10 years to get the complete picture of pricing and value trends in the area.

2. Get your Comparative Market Analysis (CMA) – this will give you a particularly detailed picture on how the numbers such as average listing price, for sale price, property size, number of beds and baths and average time on market, stacks up. This will help you determine your property valuation.

3. Find out the number of foreclosures in the area – as much as you want to be on the lookout for market opportunities (and most experts will certainly tell you, a high foreclosure rate is a definite indicator), you also need to balance this out because an extremely high number of foreclsoures can create downward pressure on the value of houses in an area.

4. Find out the number of rentals vs. the number of homeowners – this number will immediately tell you whether a property is leaning towards a flip or a rental, thus, you can plan ahead on the kind of rehab or repair you need to put into the property.

5. Find out the number of “For Sale” versus “Sold” houses – along with #4, this is also a crucial determinant whether a house is geared towards a flip or a rental. This can also give you an idea on the kind of competition you have in the area, as well as whether the area’s “pride of ownership” is high or not.

6. Find out the area’s crime, unemployment and population rate along with other pertinent demographics – you need to keep an eye on upside potential. There’s no use getting a house under contract for 30 cents on the dollar if it’s located in the middle of a war zone. Keep away from declining and high risk areas.

7. Find out the area’s “desirability” – proximity to schools, hospitals, shopping malls, entertainment centers, parks and other important establishments increases a property’s value, as well as accessibility to transportation facilities such as bus stops, train stations or airports.

8. The Rule of 3’s – do everything in 3’s: Get 3 rehab or repair quotes, 3 separate agents’ opinions, 3 separate property managers’ feedbacks, 3 separate investors’ thoughts. This will allow you to see where the property stands as far as marketability and profitability is concerned.

9. Plan your exit strategy – how do you plan to sell the property? What’s your timeframe? What’s your Plan B if the property exceeds your maximum allowable timeframe? Make sure you create contingency plans and have several strong exit strategies.

10. Play out your scenarios – what’s your expected outcome? What’s your best outcome? What’s your worst case outcome? Much like #9, you need to play out your scenarios so you can prepare contingency plans for each in order to reduce or eliminate risks. Make sure you stay realistic and conservative.