Minimizing Investment Risks With Due Diligence
Benjamin Franklin once said "An investment in knowledge pays the best interest."
Everybody talks about due diligence, but just how many investors in reality understand what it denotes to conduct thorough due diligence on a potential investment, much less carry it out? Due diligence is the manner of scrutinizing each aspect of a transaction. In the case of a real estate transaction, it entails a procedure of knowing each aspect of the real estate property that you are aiming to acquire. It conjointly entails doing due diligence on yourself - knowing each side of your own investment objectives!
Though every investor will have different necessities on his/her guidelines, the bottom line remains the same... Knowledge is Power! The more you could know regarding what you are buying, and the clearer you could see how the investment will bring you nearer to your own monetary freedom, the more triumphant your endeavor would be.
When you are assessing your next real estate property investment, allow me to share a few queries you must ask. If you do not know the answers, start asking.
1. Does the property meet your required cash flow aims?
2. Do you have an exit plan set? Re-sell, re-finance, buy and hold?
3. Until when do you want to hold this property (taking note of your exit strategy)?
4. Does the location show signs of financial expansion? (Are there any new developments, constructions, et cetera. that would affect future appreciation?)
5. Is the amount within market value? Have you ever considered the price of comparable real estate properties previously sold within the similar location? What are the conditions of the acquisition and/or lease arrangement?
7. Have you verified the age of the real estate property, hence determining any possible improvement or repairs required at the present or within the near future (roof / electrical / plumbing / cosmetic)?
8. Have you viewed all of the taxes involved? How about utility prices and zoning limitations?
9. Have you ever checked the title status / insurance?
10. Is the current rental income over / beneath market price?
11. Are all of the legal arrangements in order (signed by real tenant(s), not containing hidden clauses, and so on)?
12. Is the rental arrangement transferable to a new owner?
13. What are the lease revenues deposit arrangements?
This is just a starting list... I assume you should expand it, dependent on your own criteria.
Keep in mind, the name of the game is: Do not be terrified to ask questions till you get clear answers! Scan all papers meticulously, and last yet not least, (hear the alarms on this one!) do not give any deposit away to the developer if it doesn't move through a trust account of a third party lawyer or notary!
If everything meets your necessities, the property ought to generate a good stream of passive income, plus your new acquisition will be one that you may relish for more years to come. In the end, real estate investment could reward like no other investment can. But you must make your choices based on specific due diligence information - not emotions.
Make way for your investment to be an asset, not a liability; ensure that it will work for you by getting more information and, so, power over your financial future!
by: Tara Millar
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