Taking the first step to invest in real estate is a big one and one that cannot be taken lightly. Below is a list of checks and balances to go through during the due diligence period before you make a purchase. There are 15 issues not to miss:
1. Appraisal and Survey. Obtain a copy of the most recent appraisal to validate the value. The appraisal will also provide other valuable data like comparable building information. The survey will assist in determining what is included in the purchase, which may be more or less than what the current building owner knows. Knowing the easements or any restrictions will help evaluate if the property is adequate for its intended use.
2. Site Plan and Floor Plan. Get a disk with CAD drawings if possible. This will assist you in future space planning needs.
3. Engineering Reports and/or Environmental Reports. These are always an excellent source of information and history about the building.
4. Operating Expense History. Acquire the history for at least the last three years to determine the net operating income Ipi Meaning In Finance for the property. Obviously the more accurate the data, the more comfortable you will be with the cash flow estimates.
5. Budget. What is the pro-forma budget for the current year? Is the current owner planning on positive cash flow?
6. Capital Improvement History. Has the building been maintained? Are there any improvements taking place currently, or that are required in the near future?
7. All Deeds and Title Policies. Assure yourself that it is a marketable title with no adverse restrictions.
8. All Agreements. This includes recorded and unrecorded agreements granting any rights in any property by license, easement, or otherwise to any person or entity other than the current owner.
9. Certificate of Occupancy. Is there one, and if not, is it required?
10. Building Permits. Attain copies of permits for additions, major alterations or improvements issued since the issuance of the certificate of occupancy.
11. Tax Bills. Get copies of the most recent tax bills for the property, including any new notices of any new or pending assessments affecting the property. Get an understanding of what the taxes will be after you have acquired the property.
12. Service and Maintenance Contracts. Review all service and maintenance contracts in place and record contact names and phone numbers, to include but not limited to landscaping, snow plowing, janitorial, pest control, trash removal, sprinkler system, and alarm or security systems.
13. All Contracts. Acquire copies of all contracts relating to the building; for example, vending services, overnight delivery, alarm monitoring, etc.
14. Warranties. Determine the warranties that exist for the building including but not limited to the roof and HVAC systems.
15. Current Leases. What the average length of term for the current rent roll? Will you be required to find tenants immediately? What are the current lease rates?
This list is not intended to be legal advice, however you will find yourself in a …
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