If you’ve purchased commercial real estate, then you understand the importance of due diligence, a critical stage in the acquisition process. Due diligence is a comprehensive review of the property, from physical condition to title, zoning, permits and environmental status. It also includes a thorough review of the property’s income and expenses.
It’s important not to rush due diligence or cut corners during the process. That’s because due diligence is designed to uncover issues with the property, from title defects to zoning problems. By skimping on due diligence, you may end up with a property that’s not in the condition you expected – or that doesn’t have sufficient net operating income to make the deal make sense.
Here are three tips to do your due diligence successfully:
1. Keep emotion out of the deal. Be prepared to walk away if the results of your due diligence are not what you expected.
2. Hire the best team you can find. Your attorney, accountant, broker, surveyor, environmental expert, property inspector, insurance agent and title company should be experienced and familiar with the type of property you are buying.
3. Understand that no property is perfect. It’s likely an issue or two will arise during due diligence. Determine in advance what it will take for you to walk away from the deal or to renegotiate it.