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Do Your Due Diligence before Purchasing

You think you found the Property you are going to make some money on but once you close on a property, responsibility for this asset becomes all yours, good and bad. In order to be a successful real estate investor you need to make sure you don't make any mistakes. If you do, it will be small one and easily forgotten when you cash your first check.

Below is a list of items you should be checking before you make an offer.

Due Diligence on Your First Deal

Wynwood Duplex Kitchen before Rehab
  • Inspection
    • Upon Entering the property look for visual clues that indicate the current condition of the house.
    • Look for things that should be there but are not.
      • A bedroom without a closest. HUD would not consider this a bedroom.
    • Look for things that are there but shouldn't be.
      • A window inside the house that isn't an exterior window. Could be a porch that was closed in years ago.
    • Looks for points of failure
      • Connections: bathroom fixtures, underneath sinks....
      • Intersections: roof, ceilings and walls, walls and windows, floors and walls, water stains...
      • Windows and Doors: water leaks, holes, broken or cracked pains of glass, widows and doors open and close properly...
    • Black Mold - Indication of moisture buildup.
    • Termites - Big problems for us in Florida and Puerto Rico.
    • Asbestos - Probably present in older homes. Need to check for this.
    • Environmental Hazards - Underground oil tanks for heating, septic systems. Check the property history.
  • Comparables or Appraisal - Before purchasing the property see if you can get your hands on:
    • Recent property appraisal less than 90 days old. Ask the seller if he/she has a copy.
      Dania Beach Duplex Rehab
    • Try to determine the After Repair Value ARV by getting three property comparables within a 1 mile radius and less than 90 days old.
    • Use the Maximum Allowable Offer MAO Calculation to help determine your purchase price.
  • Title Search - Make sure you use a Title Company that understands how investors think and work. Every Real Estate Investment Club can recommend one. You assume Tile companies know what they are doing but I have gotten burned many times due to Title Company mistakes. Make sure they check for:
    • Open Permits - This has caused us more problems when we go to SELL an asset in our portfolio. It is usually the BUYERS Title company that finds the mistake and causes delays with the closing. MAKE sure they check for Open Permits!
    • Liens and Violations - Make sure they check for pet violations (Pit Bull), water, city and county liens. Check:
      • The City where the property is located: City of Miami, etc.
      • The County: Dade, Broward, etc.
  • Taxes - Check to see if back taxes are owed. Usually the Seller pays the back taxes but it is good to know while you are negotiating terms and price before you make an offer.
    • Most tax records will indicate if the structure is legal or not.
      • If you see on the tax rolls the structure is listed as a 2 bedrooms and 1 bathroom and on the MLS it is listed as a 3 bedrooms and 2 bathrooms there maybe a problem with the investment property as being legal or not.
  • History - Most counties will have a history of the property since it was built. It will contain information about the property that can be used to determine what has been done legally with permits, liens, violations, former owners, etc.
    • City of Miami – Micro Film Department, 4th Floor.
  • Zoning - You must know the current zoning for the individual parcel of land and its existing structure. You need to know what is the permitted use and current usage. Knowing this information can help you with your rehabbing plans and exit strategy.
  • Survey - You may want to order a survey before purchasing to see if the investment property has any encroachment issues.

These are some of the items we look at before making any decision to BUY. As you gain experience a lot of these items will become second nature and you will be able to apply this knowledge to tweak your success as a real estate investor.

Do you have any tactics you apply before you purchase a property? We would love to hear from you. Write your comments in the comment field below.

Related Links, Tips, Blog Postings, Presentations or Articles:

  • Miami-Dade Municipal City Codes web page.
  • Florida's Public Housing Authority PHA Contact Data web page.
  • Real Estate Tip: Make sure you have the mail forwarded to your business address after you purchase a new investment property....Why?
  • Hash and Profile Plus Tags
    • #MAO #HUD #ARV
    • +MAO +HUD +ARV

Written by +Bob Burns.
Bringing It to the Beach Baby!

+Real Estate Investor
Telephone #: 305-586-5280
email: [email protected]

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This post first appeared on Real Estate Investment Commentary REIC, please read the originial post: here

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Do Your Due Diligence before Purchasing


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