Conducting Due Diligence, Part 2 — Reviewing books and records

Following the outline presented in “Real Estate Investing for Dummies,” we continue with the key points in reviewing books and records during due diligence for fixer upper house investors.

As mentioned, real estate purchase contracts allow the sale to be canceled without loss of earnest money if the buyer’s physical inspection isn’t satisfactory. Although, additional negociation between buyer and seller often results in the seller offering to fix the problems encountered.

Issues that are resolved during the review of books and records can eliminate future disagreements with your tenants. Verify all information in writing and set up a good filing system for your new property.

Some things to have on hand before the purchase is finalized:

1. Seller-verified income and expense statement for at least the past 12 months.

2. Seller-verified rent roll. This includes a list of all tenants, move-in date, lease expiration date, current rent, and security deposit.

3. Seller-verified list of all tenant security deposits on hand. It’s best to have the seller to provide you with all security deposits so that you don’t have to recollect them when you take over.

4. Tenant applications, leases, work orders and correspondence for each tenant.

5. Copies of all service agreements (for maintenance, landscaping, pest control,

6. Copies of required governmental licenses and permits.

7. List of all personal property included in the purchase (for example, appliances, equipment, supplies and furniture).

8. Copies of the latest utility bills (electricity, natural gas, water/sewer, trash, etc.) Also, check to see if the seller has any deposits with utility companies.

9. A copy of seller insurance policy and loss history. This will help you determine how much insurance you will need to carry.

Make sure you verify the accuracy of all records you receive. Most sellers are probably honest, but you don’t know if information is being withheld unless you have copies of everything that you have a question about.

Next up: Inspecting the Property

Learn about managing tenants in compliance with the Fair Housing Act at Bigger Pockets.

Add to Technorati Favorites

Subscribe in a reader

Share this: | Digg | Ma.gnolia | Reddit | Stumble Upon |

Tags: , , ,

Leave a Reply

You must be logged in to post a comment.