10 Most Important Factors In Due Diligence

Comments(8)

• 
  dosentoski11th August, 2004

  It really depends on the type of property but in general, look at it the same way as a SFH but on a larger scale.
  
  Physical Condition Assessment
  1. Structure Type and Year built (Prefer brick)
  2. Negative or Positve Grade from Structure (Need gutters or drainage)
  3. Roof condition and expected life (mold, moisture, venting, etc)
  4. Improvements (Appliances, Fixtures, Paint, Driveways, etc)
  5. Type of heating and cooling and age(boilers, forced air, elec thermostat, etc)
  6. Type of plumbing (copper, shut off valves, etc)
  7. Type of septic/well/etc, age
  8. Insulation types (cieling, wall, noise)
  9. Easements and Enroachments
  10. Likelyhood that seller will pitch in for improvements
  
  
  Investment Assessment
  
  1. Motivation for selling
  2. Current Property Taxes and Forecasted
  3. Current Insurance Costs and Forecasted
  4. NOI and Cash on Cash Return
  5. Debt Service Options
  6. Improvement Costs
  7. Exit Strategy guidelines objectives of buying
  8. Seller paying closing costs
  9. Advertising Costs
  10. Calculate time on market and backup plan

• 
  masterprop11th August, 2004

  Thanks for the lists. That really helps me! That really solidifies things for me!!!!!!
  Great tips!

• 
  hibby7617th August, 2004

  Good list.
  
  I'd add "Market analysis of rents"
  and (expanding on his #5) flexibility of the seller regarding the financing options. (Will they carry a portion, take a note, do a equity split, parntership, defered settlement, give you a loan,etc.

• 
  commercialking17th August, 2004

  Its a good list for a SFR but a commercial list would be very different.
  
  1) Physical condition (as above)
  2) Past uses along with resulting potential or actual environmental complications
  3) Zoning and other regualtory issues
  4) Building code violations and cases
  5) Status of leases-- economic viability of tenants
  6) Restrictive covenants in leases that might inhibit access to other tenants
  7) General economic conditions in the area
  8) Title
  9) Traffic and accessability issues
  10) Survey-- encroachments, easements, etc.

• 
  NancyChadwick17th August, 2004

  A list for vacant land would also be very different. For instance:
  
  1. current zoning requirements
  2. phase 1 environmental'
  3. wetlands
  4. floodplain
  5. topo & boundary
  6. soils & rock
  7. accessibility & capacity of public utils or testing for on-site systems
  8. title issues (liens, encumbrances, easements, deed restrictions, restrictive covenants, conservancy agreements, etc)
  9. location/value of existing structures
  10. feasibility (yield, horizontal improvements, value of end product)

• 
  masterprop18th August, 2004

  I want to thank all you guys and gals who have posted the tips on due diligence. My area of consentration is multi-family and all of the posts have been a tremendous help. I have learned a great deal from this site. Thank all who have posted!!!!!!!

• 
  masterprop31st August, 2004

  Commercialking,
  What are easements and encroachments?

• 
  NancyChadwick31st August, 2004

  masterprop,
  
  I'll add this to what commercialking may post in response to your question.
  
  An encroachment happens when some part of a structure on a property extends beyond the boundary of that property onto the property of somebody else. Example: you have a detached garage built on your property and you believe all of the garage is within your property lines. But it turns out that the garage actually straddles the property line.
  
  In addition, a structure could be within property lines but not within the "building envelope" -- that is, the area on a lot left after measuring off the front, rear and side yard setbacks required by the zoning. In this type of situation, the structure "encroaches" on the setback requirements and usually this is not permitted unless the property has been "excused" from meeting this zoning provision, through either a variance or a grandfather provision.
  
  Easement is where a property owner grants to somebody else the right to use or cross over a specific part of the property for a particular reason.
  
  Example: Owner B's property doesn't front on "Blissful Lane" and B wants to run a driveway through A's property that does front on that street. Owner A would give an easement to Owner B. This would be set forth in a document describing the nature and location of the easement, any restrictions and obligations, and it should be recorded. "A" still owns that strip of land area but B would have the right to use it in accordance with the terms of the easement.
  
  Nancy