The Importance of Due Diligence In Any Real Estate Investing Deal
Once it looks like a deal makes sense for both you and the seller, and you have gotten a signed Purchase & Sale Agreement (PSA) it is time to enter into the due diligence phase.
Due diligence is an integral part of the process. You do not want to get to closing only to find out that some of the numbers don’t make sense, or there are problems with the deal that you could have caught if you did thorough due diligence.
You may be wondering why you don’t do all of the due diligence before you even get an agreement from the seller. While you obviously want to do some due diligence at the beginning, like how much the home is worth, how much the money the seller needs, the local comps, and other basic information, the full due diligence process is more in-depth and can take some time. It would be a waste to spend the time doing full due diligence if you aren’t sure the deal makes sense, or that the seller will even agree.
Double Check Fair Market Value
You will have already calculated the Fair Market Value (FMV), but going through and re-checking your numbers will avoid any headaches once you get to closing or even past closing. You don’t want any surprises. Calculating the FMV includes looking at comparable properties in the area that have sold over the last 30, 60 or 90 days. There is not any specific calculation for finding FMV, but double checking your analysis that you did at the beginning of the sale. This a very important step in due diligence.
Plan A Home Inspection
During the due diligence phase, you will want to have an inspection done to make sure there are no hidden problems that you can’t see. You don’t need an inspection for ARV. You need an inspection to determine cost of repairs. ARV is the same thing as FMV above for the most part.
You can find a reputable home inspector by asking for referrals from local contacts or even searching online for positive reviews of local inspectors. Repairs need to be included because they increase your cost of purchase.
Decide If The Deal Should Be Done
While you sit down and take a closer look, you can ultimately decide if it is a deal you want to move forward with. If it is, you can move on to the next steps in the exit strategy you chose at the beginning of the process. This will include things like checking the title and looking at the reinstatement amounts or reinstatement deadline. The next steps will depend on the strategy you are using. To learn more about the exit strategies I use in my own successful real estate investing check out my Foreclosure Investing Mastery course. The course has helped countless individuals make an income from real estate investing.