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Is Your Investment Property Ugly? Due Diligence Will Tell You.

Updated: Aug 23, 2021

The Real Estate Investment Due Diligence Steps to Take Before Making an Offer and Applying for funding

Have you found the real deal or just fool’s gold?

How do you know if you are really onto a profitable real estate deal? Is it worth your time and money?

These questions and more are answered when the savvy investor completes thorough Real Estate Investment Due Diligence. But this raises the question…what due diligence should property investors engage in before making an offer and presenting it to potential lenders?

Everyone Thinks Their Baby is Beautiful

Beauty is definitely in the eye of the beholder. But when it comes to investing in real estate, investors need to look beyond beauty, and test their optimism with real, fact-based due diligence. Investors not only need to make sure the opportunity will be profitable, but it also needs to be attractive to lenders.

How to Screen for the Right Money Makers.
Six quick steps for making smart real estate acquisitions
  1. Match your basic investment and acquisition criteria to your property choices

  2. Ensure you are following smart principles and rules of thumb

  3. Optimize your screening, offer, and loan application process

  4. Verify the numbers before making an offer

  5. Present the deal to the right financiers

  6. Dig in and further verify your estimates

Investors simply can’t waste their time looking at every available property. No matter what your level of experience, you should have some basic criteria for what you are looking for so you can spend your time on the most viable opportunities.

This includes:

  • Location and Marketability

  • Square feet of living area

  • Price range

  • Potential profit spread or rental income

  • Number of bedrooms

  • Property type

  • Complexity of repairing and re-marketing the property

If properties don’t match your criteria, your marketing and due diligence should reflect that. Your referral sources and property locators should have a good idea of your buying criteria. If you’re marketing through your website, your messaging should target the kinds of houses you’re looking for so you get good quality prospects.

 Serious volume investors often have acquisition assistants to for deals that meet their requirements. Keeping your eye on the ball prevents you from chasing deals that aren’t the right kinds of deals – and helps you avoid “shiny object syndrome” where every new opportunity becomes a distraction and a waste of time.

Rules of Thumb for Real Estate Investment Due Diligence

Following are some general rules of thumb used by many real estate investors. Each may not work for you, or in every location every time. But having your own rules of thumb is important to quickly analyze property deals and maximize your results.

The Rule of Financial Intelligence Robert Kiyosaki, real estate educator and author of “Rich Dad, Poor Dad,” reminds us to invest intelligently by remembering these definitions:

  • Asset – puts money in your pocket

  • Liability – takes money out of your pocket

  • Good Debt – finances your assets, on which someone else makes the payments