What’s Due Diligence?
Here’s the scenario: A motivated seller has contacted a real estate investor and discussed/toured the subject property. Then the real estate investor may have said something along the lines of “Thank you for your time. I will talk to my team and we will pursue due diligence. I will be in contact with you soon.” Now the motivated seller may be thinking: HUH? What’s due diligence? Why will you need to talk to your team? When a real estate investor has determined a piece of property has the potential to purchase, wholesale, or not pursue, the hope is that investor has explored the property, surrounding area, financial aspects, etc. before making the final decision. This type of research is the answer to the question: What’s due diligence?
Merriam-Webster states DUE DILIGENCE can describe matters of the law or in business matters:
“Doing Your Due diligence
Due diligence has been used since at least the mid-fifteenth century in the literal sense “requisite effort.” Centuries later, the phrase developed a legal meaning, namely, “the care that a reasonable person takes to avoid harm to other persons or their property”; in this sense, it is synonymous with another legal term, ordinary care. More recently, due diligence has extended its reach into business contexts, signifying the research a company performs before engaging in a financial transaction. This meaning may also apply to individuals: people are often advised to perform their due diligence before buying a house, signing a loan, or making any important purchase.”
Reel Property Solutions, LLC always performs due diligence. This process is property dependent, meaning there is not a set checklist to follow since not every property is the same. For example, when touring and wanting to purchase a house with severe mold growth, Reel Property Solutions, LLC obtained multiple estimates for mold remediation. The estimates came to around $14,000 just for mold remediation. So, what’s due diligence have to do with mold? When figuring the overall repair costs, the huge mold clean-up cost was more than expected which then in return will affect the overall budget and the purchase price. Reel Property Solutions, LLC also inquired with our business attorney who advised to stay away fr
om such severe mold because: 1) the extensive mold could have spread to other areas that can’t be seen such as within walls; 2) the mold in this property could have been a dangerous type; 3) there is a probability of future mold growth which could fall back onto Reel Property Solutions, LLC. Due diligence saved Reel Property Solutions, LLC from a potential law suit.
A homeowner contacted Reel Property Solutions, LLC to sell a 3 bedroom/1bathroom house. One bedroom had a very large closet. During the tour, the thought came up: to turn the closet into part bathroom, part closet. What’s due diligence have to do here? Two residential contractors came to the property and saw the possible area. One jumped up and down to discover the floor bounced back and was weak. The contractors both stated there was no way to put in a bathroom without doing extensive work to strengthen the floor to support the weight of a bathtub holding 50 gallons of water. Also, in this same room, one of the residential contractors noticed signs of a minor water leak that was inside a wall. Although the outside of the wall looked okay, the residential contractors said inside could be a big mess and advised not to pursue this property. Due diligence saved Reel Property Solutions, LLC from a potentially flooded property!
Reel Property Solutions, LLC always does due diligence before submitting for financial approval. One property had the foundation caved in about 2 feet into the ground by the garage and the foundation for a basement bedroom wall was bowing inward. The due diligence was completed, but then financing denied the go-ahead for this property due to the extensive cost of repairs. In this scenario, if Reel Property Solutions, LLC had not done due diligence for the extensive cost of repairs, the offer price could have been too high, the cost of repairs could have blown the budget, and in return, not all of the renovations could have been done properly or at all which might hinder the next buyer’s decision.
What’s due diligence: Research to save time, reputations, and most of all, money. During the classes, live events, individualized training session and much more with Fortune Builders, the term due diligence is used constantly. Never purchase real estate blind-sided. Also, never purchase real estate with any doubts. Reach
out to others for advice. Reel Property Solutions, LLC has the Fortune Builders community, real estate agent, real estate attorney, building/remodeling contractors, other investors, and so many other networks. Therefore, we have the confidence to make the right decisions for us, the seller, and the next homeowner.
Reel Property Solutions, LLC is here to make neighborhoods and houses a better living place for YOU! Due diligence is done to create piece of mind and awareness for YOU, too!
Contact us at info@reelpropertysolutionsllc.com or 507-218-8788.
