In the world of real estate investing and finance there is a lot of jargon; a lot of terms that can sound strange to someone not immersed in this world on a daily basis. Fortunately, with just a bit of research most of these terms become self-evident quickly. But, then there is this term – due-diligence…
I remember when I first became interested in Real Estate Investing and started reading books and articles on the subject, I kept coming across this slightly mysterious term. Everyone seems to use this term when talking about real estate quite routinely, seemingly with the assumption that everyone reading knows what it is and how it works, and there’s no need for explanations…
Well, I didn’t know what it was and I wished that someone would have taken the time to explanation Due Diligence in an easy to understand way. I remember it being quite difficult to zero-in on what is due diligence even after doing some research. So, because I had such a difficult time, I now want to do something to help you avoid the same difficulty!
WHAT IS DUE-DILIGENCE
Due-diligence in real estate refers to a set of processes which serve to research different aspects of an investment opportunity in order to ascertain its’ feasibility and worth. The scope of this research encompasses all elements of the marketplace at large as it relates to the asset in question, as well as all of the specifics relative to the building itself. The following is a list of some of the items to be researched as part of the due-diligence process:
a. Going Cap Rates
b. Going GRMs
c. Going Vacancy Factor
d. Socio-Economic Dynamics in the Region
e. Demographics in the Region
f. Availability & Make-up of Units
g. Going Rents
h. Going Utility Costs
i. Trends
j. Structural Integrity of the Building
k.Income Structure of the Building
l. Expense Structure of the Building
m. Utilities in the Building
n. Financing Options Appropriate for this Building
o. Cash Flow Position
p. Management Structure and Overhead
q. Many more…
The above list is certainly enough to give a lot of would be investors a moment of pause. This due diligence thing is definitely not a walk in the park, and it scares people, which is why so few investors brave the world of multi-family investing!
I covered the process of due diligence in detail as part of the Cash Flow Freedom University. But, today I’d like to offer for your consideration an eBook that I wrote for Kindle a little while ago:
13 Steps to Valuing Your First Multiplex – A Step by Step Guide
This eBook is a bit over 11,000 words and is filled with actionable content to teach you the essentials of the due diligence process. The eBook is broken up into 2 parts. First, you will learn the 4 methods of valuing property:
1. Cost Approach
2. Comparative Market Analysis
3. Gross Rent Multiplier Method
4. Capitalization Approach
You will learn the strengths and weaknesses of each method, and understand when to use which and why.
In the second half of the book I provide you with 13 Steps of the due-diligence process relative to assessing the value of the proposed investment opportunity. This eBook represents a true roadmap for you. Please purchase this resource if you ever thought about buying multi-family rentals! At a price of only $3.99, you can gain a very solid perspective on due-diligence as it relates to researching information and synthesizing the data into an appropriate purchase offer. Click here to see an excerpt.