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Due Diligence

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Drew Taylor

Due diligence is the process of investigating an investment opportunity to confirm key details and assess risk. For active investors, due diligence focuses on analyzing the property's market, physical attributes, and financials. For passive investors, due diligence centers around vetting the character and past performance of the person managing the investment, as well as return expectations and exit strategy.

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DUE DILIGENCE
DUE DILIGENCE WHAT IS IT? Simply put Due Diligence is doing your homework.
ACTIVE INVESTOR An active investor will be concerned mainly with the details of the property itself. DUE DILIGENCE
ACTIVE INVESTOR ATTRIBUTES MARKET ANALYSIS PROPERTY ANALYSIS FINANCIAL ANALYSIS NEGOTIATIONS DUE DILIGENCE
PASSIVE INVESTOR An passive investor will be concerned mainly with the person they are entrusting their money to. DUE DILIGENCE
PASSIVE INVESTOR ATTRIBUTES PERSON INVESTMENT RETURN ON INVESTMENT EXIT DUE DILIGENCE

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Due Diligence

Editor's Notes

  • #3: Simply put Due Diligence is doing your homework. You want to be sure you are getting a solid investment that will produce the return on investment that fits your goals. Think of it as if you are buying a used car. You want to be sure you are not buying a lemon right? You open the hood, inspect the interior, drive it down the road, make sure it doesnt smoke or rattle, and a host of other items. The same is true for a real estate investment. But the approach will be a different for an active investor vs a passive investor. For the active investor the focus is more on the property. For the passive investor the focus is more on the person, or the deal maker, who is facilitating the investment.
  • #4: An active investor will be concerned MAINLY with the details of the property itself. They will analyze the market and/or neighborhood, rehab estimates, and re-sale or rental potential to name a few. A home inspection will be done, a title search, contractors estimates, and a host of other details. An active investor is essentially ensuring they are investing into a sound investment they can profit from. They make their money when they buy.
  • #5: MARKET ANALYSIS NEIGHBORHOOD ANALYSIS SCHOOLS CRIME GROWTH/DEVELOPMENT DEMOGRAPHICS PROPERTY ANALYSIS HOME INSPECTION TITLE SEARCH FINANCIAL ANALYSIS PURCHASE PRICE REHAB/ARV SELL/FLIP RENT VALUE/CASH FLOW TAXES, INSURANCE, CAPITAL IMPROVEMENTS PROPERTY MANANGEMENT VACANCY NEGOTIATIONS REHAB/INSPECTION/CASH FLOW INPUT GO/NO GO DECISION
  • #6: An passive investor will be concerned MAINLY with the person they are entrusting their money to. The property details are also important but are secondary to the deal maker, the person facilitating the investment. You will want to know the person better than the property. Your goal is to never see or be involved with the property so ensuring your Deal Maker is trustworthy is key.
  • #7: PERSON KNOW/LIKE/TRUST PREVIOUS DEALS REFERENCES CREDIT HISTORY INVESTMENT PROPERTY DETAILS LTV RETURN INVESTMENT ANALYSIS* ROI/TERMS CASH FLOW EXIT LENGTH OF DEAL EXIT OPTIONS *SEE MY RESOURCE SECTION FOR WHAT I PROVIDE MY LENDERS .. GOES TO RETURN ON INVESTMENT TOPIC AND INVESTMENT ANALYSIS