Due Diligence

It's time to get to work.

I've got a duplex under contract and 10 days to perform due diligence. Every Day. Every hour. Counts. I can't waste time now!

Step 1: with a tenant in the lower unit, I immediately ask for the formal lease to verify rent and legalities. Good news! The lease is in fact set for $850 per month:

The tenant has paid ON TIME over the current terms of their lease.

I also get my loan rate locked in. Here are the rates I got from my lender:

I lock in an interest rate of 5.25% for an extra $444.

Now, the fun stuff...I get an inspection ASAP which cost me $450. Price is generally determined by square footage and type of property. For example: the inspection for My Second Property (Single Family) was $310.

The inspection uncovered some issues...

-Excessive rust in both main panels. Recommend a licensed electrician evaluate.

-Both bathroom fans need to be repaired/replaced

-Driveway in poor condition

-Both garage doors to repaired or replaced

-Recommend a qualified contractor assess source of standing water in crawlspace and make repairs.

But, there were some good things too!

-Both furnaces are only 2 years old
-Both cooling systems are 4 years old
-Both water heaters are only 1 year old
-Roof structure, roof covering, gutters, and attic are all in good shape

*It's always great when your mechanicals are still at the early stages of their lifecycles*
*It's also great when the roof is in great shape*

Overall, YES, there are some concerns. The biggest one...and you might be able to guess...is the STANDING WATER in the crawlspace. Also, the rusted panels are a red flag as well.

I don't want to kill the deal, the numbers are still great. SO, I have to do my best to estimate repair costs, lean on my property manager, contractors, and my own research.

Because I require another specialist to get out to the property to evaluate the crawlspace, I immediately ask for an inspection period extension. This is usually built into the initial contract, so make sure when getting a property under contract it's in there, unless you really feel like you won't need it!

Meanwhile, I also had my agent go out there and TAKE PHOTOS AND VIDEOS!

Make sure in addition to your inspector seeing the property, you arrange to have your agent and/or your property manager check out everything. Getting their impression of the place is SO valuable.

NEXT STEPS: I need to determine repair costs and then come up with an inspection response back to the seller. I still plan to move forward with this property!

Takeaways

• The second you get a property under contract, get to work RIGHT AWAY on proper due diligence. In fact, if you think you're even close to getting a property under contract, I'd recommend you give your inspector a heads up immediately.
• If there are tenants in the property, ask for the leases to confirm terms and rental rate. Have the owner confirm their payment habits (do they pay on time or late??). You can ask for payment statements.
• If using financing, talk with your lender ASAP. Lock in a rate and re-run your numbers to make sure it's still a good investment on paper.
• Look over EVERY SINGLE item on the inspection report. Your inspector should provide you with detailed pictures and recommendations. If you have any questions, call your inspector up! Get clarity! And don't get emotional. It sucked when I saw that there was water in the crawlspace. It freaked me out. I wanted this to be a perfect property! But, that's the reality of real estate.
• Get details on all mechanicals (water heater, furnace, HVAC) and confirm their age. Same goes for the roof. In the long-run, these are the high ticket items that'll cost you.
• Make sure you get your agent, property manager, someone else out there that you trust in addition to your inspector. The more eyes on the property the better, especially if you're doing this from a long-distance.
• Utilize an Inspection Period Extension if you need. Make sure it's built into the initial contract if you think you'll need it.

-Tyler

Next Post: Lock it Up