By Michael J. “Mick” McGirr, Esq. | Phocus Law
As you are all well aware, real estate investing can be a lucrative, exciting way to build wealth and generate passive income. However, it’s important for investors to do their due diligence before making an offer on a property. Failing to conduct thorough research can result in costly mistakes and missed opportunities. It is my intention in this article to cover some essential due diligence considerations for real estate investors, which you can use as a starting point for your own due diligence checklist. Some of these items are less ‘legal’ and more ‘general information,’ but you should be taking a holistic approach to your investing.
- Property condition and potential repairs: Before making an offer, it’s important to thoroughly inspect the property to identify any necessary repairs or upgrades. This can include everything from roofing and HVAC systems to plumbing and electrical work. Be sure to get quotes from contractors to accurately estimate the cost of repairs and factor that into your offer price.
- Property location and neighborhood: The location of the property can have a significant impact on its value and rental income potential. Consider factors like proximity to public transportation, schools, shopping, and other amenities. Additionally, research the neighborhood to ensure it’s a safe and desirable area for renters or for the type of people you believe to be your target end-purchaser.
- Market trends and comps: Look at recent sales and rental data in the area to get a sense of the local real estate market. This can help you determine whether the property is priced appropriately and what you can expect in terms of rental income, resale value, or property appreciation.
- Title and ownership: Before your offer goes hard, ensure that the title is clear and that there are no ownership disputes or liens on the property. Title policies are a great place to start with this review.
- Legal and zoning considerations: Check local zoning regulations and ensure that the property is zoned for its intended use. Additionally, research any pending legal or regulatory actions that could impact the property’s value or potential profitability.
- Environmental concerns: To the extent you believe there may be some environmental concerns, conduct an environmental assessment of the property to identify any potential hazards or contamination that could pose a liability or impact the property’s value.
By conducting thorough due diligence, real estate investors can avoid costly mistakes and make informed decisions. While it can be time-consuming and require some upfront costs, the payoff in terms of increased profitability and reduced risk is well worth it. It is advisable to always consult with a qualified real estate attorney to guide you through the process and ensure that you’re protecting your interests.
The Phocus Law team has performed due diligence on real estate and other business transactions ranging in size from very small to nine figures. If we can assist you with your due diligence needs, please don’t hesitate to reach out. I can be reached by email at Mick@PhocusCompanies.com or by phone at 602-457-2191.