Investment Property Due Diligence

investment property due dilligence

Purchasing an investment property can help create a secure financial future, but you need to do your due diligence first. Just like any other large purchase, you want to make sure your real estate investment is a wise choice that fits into your lifestyle before taking the leap.

What is a Due Diligence Period?

Due diligence is an important factor during the process of buying or leasing a commercial property. The due diligence period is the timeframe allotted for you to inspect the real estate property and gather information to make sure that you are ready to go forward with the transaction. During this period, it’s necessary to complete all the inspections and related checks can identify potential issues.

If all conditions have been met prior to the expiration of the due diligence period, then your deposit becomes non-refundable. However, if you haven’t gathered all of the necessary information or are unsure as to whether you want to go through with the deal before due diligence expires, then you can still walk away within this Free Look Period without consequence.

It’s important that when engaging in commercial real estate transactions, due diligence is followed closely so as not to miss out on any important details during negotiations regarding price, legal issues, or loans.

What is Involved in Due Diligence?

During the due diligence period, buyers need to conduct primary research in areas such as zoning and building permits, title and title exceptions, demographics, traffic, noise and hazardous materials, and earthquake faults. This research can be done by either a real estate broker or an SIOR who is familiar with the area.

In addition to physical inspections, buyers who want to acquire an income-producing property should also carry out an economic analysis. This includes analyzing market trends like supply and demand, comparable rents and vacancies, as well as operating expenses like real property taxes and insurance. Buyers should assess existing buildings or structures to ensure they meet the necessary codes of safety. Throughout this due diligence process, it is important that investors have their facts straight before entering into a contract for the purchase of a property. An informed decision will allow a confident decision about a potential property.

Here are areas of due diligence of note from the experts at Ullian Realty so you don’t have buyer’s remorse!

Due Diligence: Building

  • Are there any issues with the foundation, walls, roof, electrical, plumbing, doors or repairs that will require a major investment to bring up to code?

  • Are there cosmetic improvements needed to modify the building for your planned uses?

  • Is there ample parking and shipping receiving?

  • How many tenants can it accommodate?

  • Environmental report

Due Diligence: Building Surroundings

  • Is there open land surrounding the building that could accommodate future development?

  • What other businesses are close to the potential investment?

  • Would you share a parking lot with other businesses?

Due Diligence: Legal

  • What are the local zoning ordinances?

  • Would certain laws need to change in order bring your business plan to reality?

  • Are there any litigation claims against the building?

  • Are there currently multiple owners or a sole owner?

Due Diligence: Financials

  • What is the appraised value of the property?

  • Is the price of the investment property within your budget, or would you need outside investors?

  • What are the average monthly utility expenses?

  • Is the building set-up for WiFi and cable to offer cutting edge technology to businesses interested in renting?

  • What are the most recent tax bills?

  • Are there any tax credits available to cover the cost of making the building more energy efficient?

There are certainly other questions to ask, and research to complete, in order to do your due diligence when contemplating your next commercial investment property. Ask your commercial broker for guidance, and talk to other investors who have purchased similar properties.

At Ullian Realty our team has developed a thorough process to ensure you do your due diligence with every property you consider. With over 50 years of combined professional experience, our team is available to help you find the right investment property in Brevard County, FL. Contact us today to schedule an appointment.

 

This article was originally published on November 8, 2018 but has been updated for accuracy and freshness.