It is important to understand the factors that control and affect the market you intend to enter. The purpose of this topic is to give you a reasonably good idea of the area and property you are considering buying so that you can make a good informed buying decision. It’s not that difficult, but it takes a bit of time. However, don’t fall into the trap of analysis paralysis. You can overanalyze to the point of never taking action. That is not the intention of this chapter.
All investment property purchases must have due diligence performed prior to purchase. To develop a systematic approach to due diligence, it is strongly recommended to ask the following questions:
administrative property
What is the vacancy factor?
What is economic rent?
How long does it take to rent? (estimated)
Economic Zone of Influence
What are the guiding economic factors that drive value?
What is the sustainable source of economic growth in the area?
Who are the potential tenants, ie, high tech, professionals, blue-collar, etc.?
Demography
What has drawn prospective tenants to this area? (job growth, retirement)
Is this a tourist community or a stable sustainable community?
Are your tenants students; individual; families with children?
Income / Expense Analysis
Monitoring of the strategy selected to invest
Determine the analysis indicators of your property
Strategy to increase income/decrease expenses.
property appeal
General feeling about the area.
Convenient driving distances to work/school/recreation
Possibly family oriented.
Due Diligence Checklist
Here’s a list of things you’ll want to know before signing a purchase agreement. Not all elements will be relevant to all properties. If you have doubts, do not hesitate to call professionals to help you. This is an important step in your purchase decision.
1. Current rental list with payment dates
2. List of security deposits
3. Mortgage payment information
4. List of personal property
5. Floor plans
6. Information about the insurance policy and the agent
7. Maintenance and service agreements
8. Tenant Information: Leases, Registration Cards, Applications, Smoke Detector Forms
9. List of utility companies and providers, including account numbers
10. A statement of the structural modifications made to the facility.
11. Surveys and engineering documents
12. Commission Agreements
13. Rental Agreements or Listing
14. Easements
15. Development plans, all plans and drawings.
16. Government Permits or Zoning Restrictions
17. Management contracts
18. Tax bills and property tax returns
19. Utility bills
20. Cash receipts and asset disbursement journals
21. Capital expenditures of the last 5 years
22. Statements of income and expenses for two years
23. Financial Statements and Property Tax Returns
24. Inspection for termites reasonably acceptable to the buyer
25. All other useful records for property ownership
26. Market studies or area studies
27. Preparation of budgets or actual data
28. Tenant profiles
29. Work Order Files
30. Bank statements for operating accounts
31. Certificates of occupancy
32. Summary of the title
33. Copies of Surviving Warranties and Warranties
34. Phase I environmental audit
Enjoy your investment and do your DUE DILIGENCE!