Due Diligence You Need To Take A Real Estate InvestmentBy
Akhila Masapogu, 25-Jan-2020
Though Investing in Real Estate has become a lot easier lately, it still seems baffling to some of the first-time investors. Anyone for that matter can be intimidated about this process as it involves hard-earned money. Lack of awareness is a major reason that makes this process seem complicated. Investors doing their own groundwork through Due-diligence before investing in a property will help immensely to avoid any kind of risk or at least being prepared for it.
A good deal is only a deal that comes without any complications. Due diligence is a process of the thorough study of the property details, history and the previous transactions relating to the asset to avoid any unpleasant experiences further. Real Estate Due Diligence helps in a complete evaluation of a property that provides the buyer with all the needed information about the asset. Due diligence also speeds up the process of buying an asset and assures the buyer about the reliability of the property. Due diligence report cross-checks the compatibility of the property with all the legal, environmental and social laws. A thorough due diligence report from a reliable source is a basic requirement for investing in a real estate property.
If you’re planning to purchase a Real Estate property, you’ll have to examine the financial, operational, legal histories of the property thoroughly along with an in-depth inspection of the interior and exterior of the property. And you’ll have to make sure that property has been built following all the laws of the government and is legal, to avoid any kind of surprises that will land you at risk.
If the property you are investing in is a rental property then all the details relating to previous tenants, lease structure, rental transactions should be carefully evaluated. If the property is commercial then the focus is mainly on the physical and financial due diligence
No matter what type of property you plan to invest in, don’t skip on due diligence
Physical due diligence-
Physical due diligence is an important step in due diligence. Especially for rental properties and commercial properties where the earnings from the property depend on its physical conditions.
A crucial due diligence step is to investigate the property’s transactional history, all the transactions that took place for the property to ensure that the property is not into any kind of litigations. Financial due diligence will prove the reliability of the property.
The property’s title report, Revenue records and the encumbrance of the Title should be carefully examined and reported by a reliable property lawyer or any other third party. These reports will help you not picking up some random risky property that brings trouble.
A market study to evaluate the future earnings from the property should be done examining the similar properties’ location, demand, amenities, etc. Market analysis will help in evaluating the future demand of the property and thereby you can decide whether to invest in it or not.
Before venturing to invest in Real estate property the track record and reputation of a seller should be investigated carefully. A seller with a good reputation is always more reliable and will have a positive impact on the future earnings of the property.
IMPORTANCE OF DUE-DILIGENCE
Although the due diligence process is a little tedious and time consuming this will affect the property for many years ahead. Due diligence will also help in speeding up the investment process and thereby save you from making costly mistakes as well. It also proves the reliability of your investment. While the process may be complicated, it will give you confidence in your investment and increase the chances of real estate investment success. For new investors who are skeptical about investing in real estate property, due diligence will help in gaining their trust.
Though Due diligence may not help in avoiding the risk involved in investing, it will at least help you avoid the risks that you cant afford.
Due diligence is a process investigation that an investor does before entering an agreement, investing in property, or even before buying a property.
The physical, internal, financial, legal, and transactional aspects of a property should be critically examined and investigated for the due-diligence process.
Due-diligence covers external, financial, and legal aspects relating to the property or the investment.
Due diligence checklist contains the mandatory aspects like the financial and legal, that need to be looked into for confirming the viability of the property or investment.
Due-diligence is of many types and based on the requirement and the type of property the concerned type of due diligence is done. Legal and Financial due-diligence are the two common types.