Real Estate Investment - Items You Want to Approve Before You Buy
It is never smart to make a real estate investment without knowing how the property runs first. Therefore, when real estate investors make an offer to buy rental property, they typically include contingencies in the offer that legally permit them to terminate the offer without recourse based upon their approval of such things as the expenses related to the building.
This is the process known as due diligence; namely, the period when the real estate investor carefully reviews, checks, and verifies all the facts and issues connected with an investment property before proceeding. It's the same process lenders use, among other things, to verify a borrower's employment, income and savings.
In this article, we'll consider some of the more important items real estate investors should ask to see in their due diligence for any rental property that they want to purchase as a real estate investment.
Of course, you'll want to add any items to this list that you feel is necessary, especially if you're buying investment real estate in a location that requires upkeep out of the ordinary. In areas with severe winters, for instance, it might be necessary to pay for snow removal, and you would need to see the bills from the winter months for this expense during your due diligence.
Sellers generally are willing to supply this information once an offer to purchase has been accepted and the buyer's due diligence has begun. If not, you might consider moving on to the next deal because it's possible that he or she is hiding some material facts.
This is the process known as due diligence; namely, the period when the real estate investor carefully reviews, checks, and verifies all the facts and issues connected with an investment property before proceeding. It's the same process lenders use, among other things, to verify a borrower's employment, income and savings.
In this article, we'll consider some of the more important items real estate investors should ask to see in their due diligence for any rental property that they want to purchase as a real estate investment.
- Bills from the previous 12 months for property taxes, property insurance, utilities (water, trash, sewer, electric, gas, and so on), city licenses and other city fees, and any ongoing maintenance expenses
- Current rent-roll (list of all tenants and agreed-upon rents and security deposits)
- All rental agreements and rental applications by the tenants
- Copies of service contracts such as laundry, pool, landscaping, pest control, heating and cooling, gardening, and so on
- Copies of any furniture or equipment leases
- Copies of any major expense items over the last 12 months
- Copies of any guarantees and warranties in effect on major improvements
- List of any personal property owned by the building such as stoves, refrigerators, or air conditioners
Of course, you'll want to add any items to this list that you feel is necessary, especially if you're buying investment real estate in a location that requires upkeep out of the ordinary. In areas with severe winters, for instance, it might be necessary to pay for snow removal, and you would need to see the bills from the winter months for this expense during your due diligence.
Sellers generally are willing to supply this information once an offer to purchase has been accepted and the buyer's due diligence has begun. If not, you might consider moving on to the next deal because it's possible that he or she is hiding some material facts.
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