“An investment in knowledge pays the best interest.” -Benjamin Franklin
Everyone talks about due diligence, but how many investors really know what it means to carry out extensive due diligence on a potential investment, let alone carry it out?
Due diligence is the process of examining all aspects of a transaction.
In the case of a real estate transaction, it involves a process of learning about all aspects of the property you plan to purchase. It also means doing due diligence on yourself – knowing every aspect of your personal investment goals!
Although each investor will have different requirements on their checklist, the bottom line remains the same… Knowledge is Power! The more you can find out about what you’re buying and the clearer you can see how investing will bring you closer to your own financial freedom, the more successful your business will be.
When you’re considering your next real estate investment, ask yourself the following questions. If you don’t know the answers, start asking!
* Does the property meet your desired cash flow goals?
* Do you have an exit strategy in place? Resell, refinance, buy and keep?
* How long do you want to hold this property (taking into account your exit strategy)?
* Does the location show signs of economic growth? (Are there new developments, projects, etc. that will contribute to future appreciation?)
* Is the price within market value? (Have you researched the price of similar properties recently sold within the same area?)
* What are the conditions of the purchase and/or lease contract?
* Have you verified the age of the property, thus determining any possible improvements or repairs needed now or in the near future (roof/electrical/plumbing/cosmetics)?
* Have you taken a look at all the taxes involved? What about utility costs and zoning restrictions?
* Have you researched title/insurance status?
* Is the current rental income above or below market value?
* Are all legal agreements in order (signed by actual tenants, no hidden clauses, etc.)?
* Is the rental agreement transferable to a new owner?
* What are the rental income deposit agreements?
This is just an initial list… I hope you duplicate it, according to your own criteria.
Remember, the name of the game is: Don’t be afraid to ask questions until you get clear answers! Please read all the documents carefully and last but not least (listen to the alarm bells on this one!) Do not give any deposit to the developer if it is not going to a third party trust account, lawyer or notary!
If everything meets your requirements, the property should produce a great stream of passive income, and your new acquisition will be one you’ll enjoy for many years to come. In the end, real estate investing can pay off like no other investment. But you should make your decisions based on specific due diligence facts, not emotions.
Make your investment an asset, not a liability; make it work for you by gaining more knowledge and therefore power over your financial destiny!