How To - Due Diligence
Due diligence plays a key role in real estate investing. The term refers to the thorough vetting a buyer must do before purchasing a property. No matter where the property is, what type of distressed property it is, or what your investment goals are, due diligence plays an important role.
What is Due Diligence?
Due diligence means taking your time to thoroughly investigate a property prior to making a bid or offer. This may involve reviewing documents, performing calculations, procuring insurance, and performing in-depth research of the property and its surrounding area. Due diligence boils down to doing your homework before making this important purchase.
The due diligence process starts once you first become interested in a property. By looking at photos and reviewing information on ServiceLink Auction Powered by Hudson and Marshall’s Property Details Page, you are already gathering knowledge about the property. As you get closer to bidding on and purchasing a property, the more due diligence you carry out will make you a more informed buyer.
The type of due diligence process you adhere to will differ depending on the type of property you’re looking for. For example, some foreclosure auctions are provided “as-is” and do not allow inspections to check the property before closing a deal. Other types of transactions will allow you to conduct multiple inspections and include contingencies that relate to them. However, there are a few pieces of general due diligence that relate to every type of real estate scenario:
Get to Know the Area
Real estate is all about location, which makes it essential to familiarize yourself with the surrounding area around the property. Driving around the area and conducting a visual inspection from the curbside can give you a general idea of the condition of the property, and the neighborhood can give you clues to the potential property value. This process should be carried out with caution. Do not step foot on the property or enter the property because this can be considered trespassing.
Consider talking to neighbors about how they see their property values fluctuating. Check with the local government to see if the neighborhood is a low-crime area. Also, look into whether there are nearby developments planned. Review the ratings of local schools, check price trends, and go to open houses in the area. All of these can give you insights into the value of the home.
Review the Comps
Comparable properties, known as “comps”, are the homes with similar attributes to the property you are interested in. This includes location, size, and amenities. Studying the comps is an important part of the due diligence process. Look at similar homes recently sold in the area to get an idea of what your potential property is worth. ServiceLink Auction Powered by Hudson & Marshall’s auction search is a great way to find comparable properties that are on the market.
Seek Professional Real Estate Guidance
A real estate professional can greatly assist the due diligence process. A real estate attorney or a qualified real estate agent can help you research into the property and offer their professional guidance when it comes to ascertaining the property value and raising any concerns. First-time buyers can especially benefit from the expertise of a real estate professional.
Additional Property Research
There are many other aspects to explore as part of the due diligence process. They include:
- Price history
- HOA fees
- Liens against the property
- Title research (ie. online resources like Black Knight Financial Services)
- Local ordinances and laws (if you are holding and renting).
If you’re ever in doubt, a qualified real estate professional can help you cover all of your bases. ServiceLink Auction Powered by Hudson and Marshall also provides tools and resources to help with additional property research such as Property Reports, Title Reports, Property Inspection Reports, and Interior Access Information.
While the due diligence process may seem daunting and extensive, don’t let it keep you from discovering an ideal real estate investment. The more research you carry out, the more informed your bid will be. The end result is a property purchase you can be confident in.