Commercial Real Estate Due Diligence
Making a major purchase, such as real estate, means making certain you leave no stone unturned. That is the reason why due diligence is an essential part of buying real estate. Know what you are buying to prevent misunderstandings and mistakes.
In fact, here at Equity Legal LLP, not only are we San Diego real estate attorneys, we are also licensed commercial real estate brokers. Having the combined power of both licenses allows our firm to offer the best real estate law advice while handling commercial real estate due diligence and investment transactions.
We will attempt to outline some of the steps you need to take in performing proper due diligence, but this is not complete. Every real estate transaction is unique, and therefore takes care and wisdom when deciding to purchase a property investment. For your convenience we have compiled a due diligence check list to use as a reference – (Click Here)
What Is Real Estate Due Diligence?
In basic terms, real estate due diligence defines a process where you are performing “homework.” That means calculating costs, reviewing paperwork, obtaining insurance, and arranging for inspections. In essence, you are doing homework for a property before actually buying it. If too many issues exist, you can eliminate these potential risks by canceling the purchase agreement and seeking another property.
Therefore, a real estate due diligence checklist can be extensive. However, it never hurts to have a general understanding of what is involved. If you are a real estate investor, real estate due diligence companies offer services that simplify real estate transactions. For example, if you are buying a property that is an apartment complex or a large commercial retail space, due diligence may include the following areas:
- Acquisitions and dispositions
- Commercial loan underwriting
- Lease abstraction and analysis
- Tenant recovery calculations
- Confirmation of property financial information
- Confirmation of billings for tenants
- Help with budget preparation
- Assistance with estoppel certificate preparation
Performing Due Diligence For Real Estate
When you are contemplating buying a residential property, basically, due diligence includes the following:
- Shopping The Real Estate Market – Make sure you are fully aware of what the market features. Do not review a few properties. Instead, you should spend a few months looking at real estate. Get yourself well acquainted with the marketplace.
- Financing A Mortgage – Make sure that the deal you receive on a mortgage is competitively fair.
- Performing A Property Inspection – Have an inspection performed and seriously consider the inspector’s comments. Next, contact a contractor or visit the hardware store to see how much any required work will cost. Renovating a property can be a major expense. Therefore, it is important to obtain estimates for the work.
- Obtaining Homeowner’s Insurance – Can a homeowner’s policy be issued for the real estate? If so, how much will it cost you? If the real estate is in a hurricane zone, you may not be able to buy insurance. If you can obtain a policy, it may be cost-prohibitive. Obtaining Title Insurance
- Obtaining Title Insurance – Have you reviewed the property’s abstract and title insurance? Schedule an appointment with a lawyer to assist you in reviewing the documents. Review the property’s plat as well. Check the easements and walk the property, checking for encumbrances.
The above listing is just some basic tasks you need to do when doing due diligence on real estate. Tasks can become rather comprehensive. Therefore, it often helps to rely on real estate due diligence services, especially when buying commercial real estate.
When Buying A Property It’s Important To Get Organized
Now that you have been given a basic introduction, you can review what is involved when using a checklist. Whether or not you rely on due diligence services, a checklist can assist you in making any pre-closing activities more organized.
Due Diligence Checklist
You can break down a checklist into the following classifications, for example, when performing the due diligence for the purchase of an apartment building.
- Acquisition Actions and Documents
- Title, Surveys, and Zoning
- Tenant and Lease Matters
- Financial Matters
- Service Contracts
- Property Inspection
- Inventory of Personal Property
- Governmental Review
- Closing and Miscellaneous Actions
- Property Management and Operations
- Internal Reporting