The Hazards of Avoiding Due Diligence

Avoid getting a bad surprise by performing due diligence on all would-be investment properties. Many U.S. properties are loaded with baggage far heavier than when only market value and financing ruled your decision-making.

See The Big Picture and Then Zoom In

Let’s work from the outside in. Start with the property’s location and then move to the building and land. I will focus primarily on property acquisition.

You know all about location, location, location. The location dictates your strategy because of the nature of the local economy. For example, a strong economy creates a real estate sellers’ market and yells out, “Buy, rehab and flip!” in an upscale neighborhood. But, properties in these neighborhoods generally do not positive cash flow. Slow or moderate economic growth and a flat real estate market might be perfect for buy and hold.

Get very local too. Does the neighborhood have transit, shopping, schools and major employers nearby? Attract high-quality tenants willing to pay slightly higher than market rent because of nearby amenities. Or, rehab an ugly house near amenities making it a desirable buy.

A very local issue is zoning. Is a single-family house sitting on a lot (and perhaps even adjacent to one) zoned to allow a multifamily building? Or, could it be easily rezoned and turned into a duplex? Could you add a garage and enhance its income? Use, or change, the zoning rules to your advantage.

Read the rest of this article by subscribing to Real Estate Income Magazine.