The Third Step Towards Real Estate Investment: Due Diligence and Closing

Imagine conducting a complete analysis of a real estate investment option without taking due diligence and verifying the details of the property, project, or developer. As data and information regarding multiple aspects of a real estate investment option are available through online and digital means, a large portion of the society does not verify the actual on-ground details. This can lead to unintended and harmful consequences for the investor, as in some cases, it has been seen that a property sold to the buyer is actually not in the seller’s name. Therefore, conducting due diligence and verifying details of an investment option is a necessary step towards successful investing in real estate. Once all the details have been verified, the investor must ensure that he or she has enough resources to close the deal. Continue reading to understand the third step of investing in real estate, due diligence and closing.

After conducting a thorough deep-dive analysis of an investment option, due diligence must be taken on part of the investor. People usually trust the information they have, but it is important to verify. What needs to be verified are key drivers to the investment and anything that could create a worst-case scenario for the investor, such as verifying if the purchase being made is actually what was advertised. Anything that has been assumed correct by just seeing it on the paper must be verified for its authenticity. Another particularly important issue is the verification of the actual seller who has the legal title to the property. It’s not uncommon for investors to run into this scenario where the seller is a scam artist who pretends to have title to some marketed property that no one’s paying attention to, whereas the actual seller may be overseas and does not realise his property is being sold. This means that the investor will never get a proper title to his property. Moreover, when investing in rental or commercial real estate, lease contracts from tenants must be verified to make sure that the rents the seller is advertising are actually what is being collected. In the case of commercial properties and industrial tenants, the details of the business being conducted on the premises must also be verified, as in some cases, the business can have legal repercussions such as environmental taxes in case of harmful chemical businesses. In the case of a residential property, be it rental or fix and flip, verifying the integrity of the foundations, roof, walls, and fittings is especially important as repairs for these can be very costly. There are multiple professional appraisal services that can assist in the process. This is what due diligence is all about.

After reaching a point where a thorough analysis has been conducted and due diligence has been completed, the investor must now put money into the investment. This is the stage where the financing and closing details must be sorted out. Ensuring that all the funds are in place is crucial to making a time-based decision. Investment opportunities can slip up quickly as more than one investor is planning on making the same investment at a time. Moreover, besides the purchase price of the property, there are additional costs such as closing costs, professional fees if the property is a commercial type where architecture and engineering fees also apply, legal fees, and whatever needs to be added for the development of the property. In cases where an investment is linked to the development of the property, finances for construction and rehab must also be considered. It may be a good idea to have funding for contingencies as well, in case things are more costly than what was anticipated. At this stage, reviewing and executing a purchase agreement is also important. Closing the deal can be in the form of bank transfers, cash transfers, or exchanges through an escrow account. Once the funds have been transferred, the investor has secured his rights over the property. However, this does not mark the completion of the investment process as an investor considers exit after any profit or loss has been made. Continue reading in our upcoming articles for the next step of real estate investment.

Data and information regarding multiple aspects of real estate are readily available on the internet or through local authorities. However, a large portion of investors do not verify the actual details on the ground. Due diligence must be taken on part of the investor. People usually trust the information they have, but it is important to verify. What needs to be verified are key drivers to the investment and anything that could create a worst-case scenario for the investor, such as verifying if the purchase being made is actually what was advertised. Investment opportunities can slip up quickly as more than one investor is planning on making the same investment at a time. Therefore, the financing and closing of the deal promptly are important for taking maximum benefit from the opportunity.

Finance. (2021). Navigating the Nuances of Investment Due Diligence. Retrieved from https://www.toptal.com/finance/due-diligence-consultants/investment-due-diligence

PropertyGuide. (2020). Registration and Transfer Costs – Explained. Retrieved from https://www.privateproperty.co.za/advice/property/articles/registration-and-transfer-costs-explained/687

RealEstateLawyers. (2021). What Happens if a Seller Fails to Disclose Defects When Selling Property? Retrieved from https://www.realestatelawyers.com/resources/real-estate/purchase-sale-agreements/what-happens-a-seller-fails-disclose-defects-whe

Souerby, J. (2018). Beware of Personal Property In Real Estate Sales. Retrieved from https://cordonrealestate.com/personal-property-in-real-estate-sales/