Purchasing a new home or investment property is a very big personal and financial commitment. Because of this, it is important that you complete property real estate due diligence.

Completing proper real estate due diligence will help to ensure that you are making a good financial investment and that the home meets the needs of your persona lifestyle. There are several different parts of real estate due diligence that will need to be completed to ensure you are making the right choice.

Total Home Costs and Budget

When you are looking to do diligence on the property, the first thing that you will need to do is determine what the total costs and budget will be.

real estate due diligence

When you are building a budget for your home purchase, you will need to factor in the mortgage, property taxes, insurance, and estimate for repairs. Ideally, all of these expenses will cost less than thirty percent of your gross monthly income.

Real Estate Market

As you are finding a home to buy, you also need to consider the strength of the real estate market. You should determine whether the market is trending in a positive direction, or whether it seems to be heading in the wrong direction.

You should be able to do this by reviewing past sales reports and figuring out how long it will take for the average property to sell.

Local Amenities

Another part of real estate due diligence is figuring out if the local amenities in the area meet your needs.

Depending on what you are looking for, this will include figuring out how well the commuter transportation works, whether the schools are of top quality, and whether there is a strong local job market.

Since a home is a long-term commitment, it is important that you find what you are looking for in your local market.

Third Party Reports

When you are going through the process of analyzing the property, you will also need to have some third-party reports ordered. In many cases, these reports will be required by the lender and will include the property inspection report and the appraisal.

The property inspection report will let you know if there are any glaring repair needs and could also provide you with an estimate as to when major repairs could be needed in the future. The appraisal will give you an assessment of the market value of the property.

Homeowners Association

Another factor that needs to be considered when you are looking to buy a new home is whether or not the property is located in a homeowners association. If you are buying a condo or townhouse, there is very likely an association established.

These associations will have a variety of rules and restrictions, which could impact your ability to do some things, including leasing the property to tenants. Because of this, it is important that you understand the bylaws to ensure you are able to comply.

Furthermore, it is important to get a sense of the financial health of the association. It is important that the association is cash flow positive, has good collection history, and has ample reserves to pay for any immediate needs.

1 Comment

  1. Rob

    Thanks for the help with due diligence.

    Reply

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