Why is it that sellers, brokers and title companies avoid talking about DUE DILIGENCE?
The vast majority of investors, real estate brokers and commercial real estate professionals barely scratch the surface conducting their due diligence when they buy commercial real estate investments. Investors are taking unnecessary risks and throwing money away or making bad investment decisions by not properly performing due diligence. Brokers are putting themselves at risk for potential litigation and missing an opportunity to help their clients as a true ally and team member.
When you buy real property, and especially when you buy commercial real estate, you require a system. You cannot rely on “Disclosures” – these are law mandated for residential homes, but in the commercial real estate world, the old maxim of “Buyer Beware” applies! So, if you don’t have a system or plan that prevent things from falling through the cracks as the process of due diligence is underway, you lose.
There is so much material to review: property records; physical inspections; leases; tenant interviews; municipal records; insurance; market research; discussions with property personnel; critical Financial analysis, etc. You need something more than a title agent check title and prepare the deed, mortgage and the myriad of other legal documents involved. If you check your title insurance policy exclusions before you buy commercial real estate, you will be astonished at what is not included. You need a guide with a reference tool so you do not have to remember all the things there are in purchasing a commercial real estate investment. This guide commences his work during the negotiations of the Purchase and Sale Agreement and goes on after until closing the deal.
The whole purpose of the due diligence process is to discover the potential problems with a property, reveal any hidden profit potential, and to verify all information that you have obtained. All this “intelligence” will enable a buyer to make an informed decision on whether to move forward, or not, with an acquisition. In short, a thoughtful due diligence process will afford the buyer confidence that once the acquisition is complete, there will be no material surprises. In other words, you’re purchasing the investment with “eyes wide open”.
A lawyer is not there to just hold your hand through the process. He will review and evaluate the existing leases, create a Due Diligence Checklist and aid you in outsourcing inspections to qualified experts that will tell you the truth about the status of this income stream that you hope to acquire.
The results are filled with information that is useful in any commercial real estate investment purchase, from the smallest to the largest.
Are you prepared to buy commercial real estate?
Don’t avoid it or minimize its importance. Only by doing a thorough due diligence plan when you buy commercial real estate can you be sure of success in acquiring a property to its next level.
For more information contact: Alexis Gonzalez, Esq. | Gonzalez Law, P.L. | 305.858.4512 | info@gonzalezlaw.biz
My sister wants to start her own business, and she’s shopping around for a building she can base it in. She’s never done this before, so I wanted to look some tips up for her, and your article was just what I was looking for. You mention to make sure one has the proper documents, like a title agent check title, prepared deed, mortgage and a myriad of other legal papers. Thanks; I’ll share this with my sister so she can buy commercial property for her future business.