Kevin Griffin serves as president of Kevin Griffin Realty, LLC, located in McKinney, TX. In this position he handles all business matters related to the review of acquisition of real estate in and around McKinney, TX, including due diligence processes.
Performing proper due diligence ahead of a purchase is one of the most important processes for real estate investors. Any investor who moves ahead with a transaction having performed little or inefficient due diligence risks losing large sums of money. While real estate due diligence is a fairly comprehensive procedure, investors can begin by breaking down their assessment of a property into three basic parts.
Financial due diligence involves accounting for every dollar that has gone in and out of a property, from past utility bills to federal tax returns. Cash flows must be verified, property tax statements must be accounted for, and historical financial statements must be carefully reviewed. A lack of financial due diligence can result in the purchase of real estate that does not provide adequate cash flow for investors.
Legal due diligence, meanwhile, demands potential investors gather any and all legal documentation available on a prospective property. Surveys and titles are common legal documents, but investors should not stop there. For example, tenant leases should also be reviewed for any oddities that could harm a property’s value.
Finally, physical due diligence requires real estate investors to make an in person inspection of a property. Ample documentation should exist describing the physical condition of a property, such as a property inspection assessment (PCA), and should be thoroughly reviewed. However, no amount of paperwork can replace an actual on-site inspection. Not only do these visits allow investors to appreciate any physical risks or challenges presented by a property, but they can also help investors schedule renovations and other physical improvements.