Due Diligence: The Difference Between a Successful and Failed Investment

Performing your due diligence when considering a real estate investment opportunity is the single most important step to ensuring an investment that meets your expectations.Due diligence

Unfortunately most real estate investors that I’ve mentored have shared with me countless tales of errors and assumptions that have cost them severely. For this reason I am sharing an email that I sent this morning to help novice investors to learn.

The following email with attached cashflow analysis asks the questions required to ensure that I can make an informed decision without assumption. It also shows the realtor that I am serious, experienced and respectful of his time.

real estate due diligence

real estate cashflow analysis

Let’s analyze the most important inclusions in the above email and attached cashflow analysis and identify the reason they are so important:

  • MLS listing numbers or links – save the realtor time
  • Cashflow analysis – showcases experience & intent
  • Ask for actual numbers – many listings provide estimates or old numbers, always verify these
  • Ask for answers in writing – protects yourself in the event of mistakes / false numbers
  • Conditions – describe conditions, best to handle this up front so the realtor can discuss with seller
  • Tell the realtor that you are experienced and won’t waste his time. He / she is a busy person and you need timely answers to make offers on the best properties before they are sold
  • Don’t make assumptions in the cashflow analysis – highlight in red anything that requires verification
  • Perform multiple cashflow analysis based on different mortgage rates – remember they wont’ always be as low as they are today!
  • Don’t be afraid to show the cashflow analysis to realtors. It not only shows your experience, it also helps in negotiation, especially if cashflow is tight
  • Ask about vacancies. It is common to list the previous rental amount without providing vacancy information in listings
  • Most importantly, always follow up every email with a phone call

Within a few hours I received a response from the agent with the answers:

Real estate investing due diligence response

Here’s a list of the items that I may have overlooked without having performed this due diligence. These items require my consideration and/or additional information so that I can finalize my assessment:

  • Vacancies: 2 vacancies will need to be occupied
  • Landlord pays electricity for: common areas, mechanical room, hot water for all units. What are these costs?
  • Roof was done 19 years ago and should be assessed (Soprema elastometer membrane life expectancy is 30 years in optimal conditions)
  • Windows requires inspection and assessment

I also discovered the following useful information:

  • Acquisition of several long-term tenants
  • Property taxes, school taxes and rents are verified
  • Tenants pay own hydro
  • Realtor is experienced in formulating offers with appropriate conditions
  • Building has some renter pros & recent renos: outdoor plugs for cars, Bell Fibe cabling, washer/dryer
  • Property management already intact

Because I’ve made it so easy for realtors to work with me, I have more than a dozen realtors proactively presenting me with opportunities on a regular basis; often times before they even hit the market! It’s important for you to realize that every email sent to a realtor is asking for an investment of his / her time. Oh sure… “it’s their job” to provide you with these answers. But it isn’t their job to go out of the way for you. If you show them respect for their time and they know that you’re serious, experienced and pleasant to deal with, most realtors will go out of their way for you.

Off to make more phone calls! My due diligence awaits me.

Brent Mondoux
Founding Partner, Amplified Investments
Investing in real estate

One comment on “Due Diligence: The Difference Between a Successful and Failed Investment

  1. Pingback: Why Should I Consider Investing in Real Estate? | Amplify Your Investments and Achieve Financial Freedom

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