The due diligence process conducted before the closing of a real estate acquisition includes all these procedures to make sure the property, financial and market data provided by the seller and broker are accurate and form the basis upon which the purchase price is based on. Shoddy due diligence can result in poor financial proformas, missed negative lease provisions and critical issues with the property’s physical condition and can lead to lower investment returns and reduced cash flow for the property.
One of the key procedures in the due diligence process is a detailed analysis of the market
where the property is situated. This involves looking at property data such as supply and
demand for space, rents, vacancy, new construction, cap rates, competition, and a highest and best use review. A proper market analysis should uncover these key market issues and reduce the risk of market changes that will negatively affect the value of the property. Data will tell you everything, except what to do with it!
Don’t allow FOMO (Fear of Missing Out) to take over sound judgement. The most dangerous
four words in the investment world (“This Time It’s Different”) are associated with every market bubble and financial crash in U.S. history. The investment world today is far different than it was five years ago. As a matter of fact, its different than it was five months ago!
(Part 2 of 3)
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