Many property buyers and investors have trouble with the real estate due diligence process. If one has never done it, it can be overwhelming and stressful. You may not know where to start, what information to seek, and how to gather the right data to decide whether the property you want to buy is a sound investment or not. Let’s make the process simple by elaborating on these five due diligence to-dos.
Many first-time investors only look at a few properties before making an offer and purchasing real estate. The problem with this approach is that the sample is too small. It’s always better to spend some time shopping around and checking out many different properties, so you can make a more educated decision. Driving around, talking to people who live there, and checking other factors such as employment or crime rate can give you an idea of which markets to avoid.
To put it simply, due diligence means doing your homework on the property. Before the appraisal and the home inspection can take place, you need to check the property yourself, review the documents, calculate insurance, and other accompanying costs, as well as market values and trends in the region. In a nutshell, you need to do everything you can to make sure you’re buying a property that is going to yield a positive ROI.
In specific cases, such as investing in another location, the first two steps are much more difficult to complete on your own. While in the information age, such information is accessible online, having “boots on the ground” is still priceless, especially if you’re about to invest serious money. Relying on their vast operational knowledge of local markets and legislation, Invest Islands is a good example of a real estate agency that offers their clients the opportunity to invest abroad through a regulated entity, with no need for a middle-man.
If you plan to use a mortgage to finance your investment, lenders will require an appraisal to make sure the property is worth its price. In their report, an appraiser will consider the property and lot size, location, possible upgrades, and compare it to similar properties in the neighborhood. A home inspection, on the other hand, deals with the state of the property foundation, structure, roof, plumbing, HVAC, electrical system, insulation, windows, etc. as well as evidence of damage or defects that cost money to repair.
Doing a title search ensures that you’re purchasing a real estate with a clean property title. It’s important to determine there are no hidden liabilities or liens that could cause problems in the future. If you happen to find such issues, discuss them with the seller in the early stage to get them resolved before the papers are signed. When this is done, apply for an owner’s insurance to hedge yourself from problems, such as undisclosed heirs, errors in records, forgery, etc. that were not discovered during the title search.
These five steps in determining due diligence can save you a lot of unnecessary stress and inconvenience. If you do everything right, you’ll be able to make more informed decisions and avoid costly mistakes.
Mike Johnston is an avid freelance writer and blogger. He is a regular contributor to numerous blogs and online magazines, where he writes about home improvement (his specialty!), real estate, small business, green living and many other topics. Mike’s goal is to create interesting and compelling content and then share it throughout the online community.