I am currently reading "Real Estate Investing for Dummies" by Tyson and Griswold, a well-written and thorough book that covers the basics of what real estate investors should know. I've long considered "Investing in Real Estate" by McLean and Eldred as one of the best introductory texts for real estate investing. Yet after reading the "Dummies" book, I find it equally as good, and perhaps a little more accessable for the new investor.
Here is my list of Top New Real Estate Books that I posted on Amazon.
For today's blog, I'm incorporating key parts of the "Due Diligence" chapter from the "Dummies" book with my own real estate observations.
Once you have made an offer on a house and it had been accepted by the seller, the "due diligence" period begins and you have until the close of escrow (or completion of the sale) to check out the physical and financial condition of the property. If you discover that the property has problems, but you think the deal is still worth pursuing, the seller may be willing to correct any deficiences, or give you money to to complete the necessary work yourself.
It's during this time frame that you must get all of your questions answered and be sure you know what you are getting. If done properly, it will require quite a bit of effort on your part. But it must be done, if you wait until after the property is in your possession, its too late to ask the seller to replace that broken furnace.
You should work closely with the seller but take his word for anything. Only trust what you have in writing.
In my case, most of the house that I buy aren't bought from the owner. They have been reposessed by a bank, the Veteran Administration or HUD. But I still do due diligence by having my friend/handyman go through house with a fine tooth comb. He knows more about the house repair than anyone I know.
There are two key components of due diligence process:
1. review of books and records
2. the physical inspection
A thorough look at these two components should allow you to determine if the property is worthwhile, priced right, and your goals. The due diligence is your last opportunity to either complete the transaction, or cancel the escrow, have your money returned, and look for another property.
Next post: Reviewing Books and Records
Info on Terry's Book
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2 comments:
Great post. I have several rental properties and these are some additional factors that I consider as I evaluate a potential property (particularly one that I plan to rent out):
1. Property Value Trends
2. Crime Rates
3. Rental Demand
4. Fair Market Rent values
Small-time investor,
Good comment. Those are important considerations. I usually consider those factors prior to making an offer and doing due diligence. However, if it hasn't been done prior, it should definitely be done before the deal is sealed.
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