Creative Due Diligence

Posted on June 9, 2014 by

Doing proper due diligence on a property before you buy is an extremely important part of being a successful real estate investor. In this article I will show you some tips for getting your due diligence done with a creative twist.

One of the most important parts about due diligence is getting it done by the right person or right group of people. One of the best tricks I have found is to get my contractors to do it for me and do it for FREE!

I have good relationships with the contractors in my market (you should too). Building a team of loyal contractors to help you grow your real estate business is very important. Here is a short list of the “must have” contractors on your team.

  • Electrician
  • HVAC (heat and air)
  • Plumbing
  • Carpet
  • Paint
  • Roofing

What you do whenever you look at a new property, or start a due diligence process after getting an offer accepted, is to contact your team of contractors. You get them to all show up on the property and everybody walks the units and premises together. Have each one of them inspect the buildings for their area of expertise. When this is done, you have each contractor give a written estimate for the needed repairs.

By doing this you accomplish several things at once. You now have the inspection done and you know what is right and wrong with the deal. At this point, you will know how much cash you are going to need to get the repairs done after closing. Make sure you have all your estimates in writing. That part is very important to begin negotiations with the seller. These written estimates can be used to negotiate the price, or if you are doing some form of creative financing, you can use this to lessen the down payment or terms. By having estimates in writing, it helps to take the pressure off of you and puts it on the contractors as well as brings validity to your argument.

Remember I mentioned free? In order to get your contractors to give you these estimates (due diligence) for free what you will want to do is to guarantee them the work that they have estimated. Once you close, they get the contract for the repairs. Make sure you know and trust your contractors because if you are going to promise them work in exchange for the estimates you want to make sure that they are going to give you the best prices.

Bill HamBill Ham has been investing in real estate for 8 years and has created a portfolio of nearly 400 apartment units in Macon, GA. He created his entire real estate investing portfolio using creative and seller financing.

 

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