Due diligence isn’t just important, it is critical to success. Business decisions are based on solid information, you must be able to justify your decisions based on due diligence. Here is a very thorough checklist of due diligence items to complete.
1. All Comps For Sale, Active and Pending Sales – Get Comps for the last 3-6 months within .5 to 1 mile. Also do it for the last 3, 5, even 10 years to see trends and the full story.
2. CMA, Comparative Market Analysis – Get a CMA so you can see how everything stacks up, average listing price, for sale price, property size, beds, bath and even average time on market.
3. # of foreclosures – Too many foreclosures can put downward pressure on an areas value, but you do want opportunities.
4. # of rentals vs home owners – This will be important to determine if it is a flip or rental.
5. # of for sale vs sold comps – This is also crucial to determine if it is a flip or rental as you can see your competition and the areas pride of ownership.
6. Crime, Unemployment, Population, other trends – Warzones and declining areas are to be avoided. Upside potential is what you want.
7. Schools, shopping, entertainment, parks, transportation, desirability – People want to live in desirable areas with these amenities.
8. Do things in 3s – Get 3 rehab bids, 3 agents opinions, 3 property managers feedback and consult 3 other investors/experts.
9. Exit strategies – Thoroughly analyze your exit strategies, create backup plans and ensure you have strong multiple exit strategies.
10. Worst/Best/Expected Case Scenarios – Analyze worst case scenarios, best case scenarios and the expected scenarios. Be realistic, conservative and understand the risk.