Ultimate Real Estate Due Diligence Checklist

By Brian Gibbons | REISkills.com

📌 Pre-Purchase Analysis (Quick Financial Viability Check)

✅ Rent Roll Review – Verify current rents, lease terms, and occupancy.
✅ Other Income Sources – Laundry, parking, storage, vending machines.
✅ Seller’s Income & Expense List – Request Schedule E or profit/loss statements.
✅ Quick Value Metrics:

Cap Rate (NOI / Purchase Price)
Cost per Unit (Total Price ÷ # of Units)
Cost per Sq. Ft. (Total Price ÷ Total Sq. Ft.)
Gross Rent Multiplier (GRM) (Price ÷ Annual Gross Rent)
Replacement Cost (Estimate rebuild cost vs. purchase price).
✅ Generate 3 Offer Scenarios – Calculate:
1st-year cash-on-cash return.
1st-year total ROI.

💰 Financial Due Diligence (Deep Dive)

✅ Verify All Expenses:

Utilities (water, gas, electric, trash, cable).
Property taxes (check for upcoming increases).
Insurance (confirm coverage & potential rate hikes).
Maintenance records (past repairs, recurring issues).
✅ Lease & Tenant Review:
Collect all current leases.
Confirm security deposits and tenant payment history.
✅ Bank Statements – Cross-check rent deposits vs. stated income.
✅ APOD (Annual Property Operating Data) – Seller must provide:
Monthly, YTD, and past 12-month income/expense reports.
Signed acknowledgment of accuracy.
✅ Rent Survey – Get 5+ rental comps to validate market rents.

⚖️ Legal Due Diligence (Title & Compliance)

✅ Title Report Review – Check for:

Liens (tax, HOA, mechanic’s).
Easements, CC&Rs, encroachments.
Seller’s name exactly matches deed (even middle initials matter).
✅ Loan Verification (If “Subject To”):
Confirm loan balances (seller must authorize lender release).
Check for due-on-sale clauses.
✅ Spousal Signatures – In community property states, ensure all owners sign.
✅ Zoning & Permits – Verify allowed uses and unpermitted work.
✅ Pending Litigation – Search court records for lawsuits.
✅ Sex Offender Database – Seller must disclose if required.

🔍 Physical Inspection (Avoid Costly Surprises)

✅ Professional Inspection – Cover:

Roof, foundation, HVAC, plumbing, electrical.
Mold, termites, asbestos, lead paint.
✅ Key Red Flags:
Fresh paint hiding cracks/water damage.
Sewer line issues (scope if needed).
Improper venting (bath fans, dryer vents).
FEMA flood zone status.
✅ Seller Disclosures:
TDS (Transfer Disclosure Statement) – Seller’s known defects.
NHD (Natural Hazard Disclosure) – Flood/fire/earthquake zones.
SPC Report (Pest Control) – Termites, dry rot, infestations.
Lead-Based Paint (Pre-1978 homes) – Federal disclosure required.

🏘️ Neighborhood & Market Analysis

✅ Comps (Comparable Sales) – Last 3-6 months, similar:

Sq. footage, beds/baths, condition, location.
Price per Sq. Ft. (PPSF) analysis.
✅ Rental Demand – Avg. days on market, vacancy rates.
✅ Economic Factors:
Job growth, population trends, new developments.
✅ Visit at Different Times – Weekdays vs. weekends, day vs. night.

📝 Post-Due Diligence Actions

✅ Re-Run the Numbers – Adjust ROI projections based on findings.
✅ Renegotiate or Walk Away – If issues found, revise offer or exit.
✅ Final Advisor Review – Have attorney/CPA validate deal structure.
✅ Secure Insurance & Utilities – Update policies in your name.

🚨 Critical Pitfalls to Avoid

❌ Skipping Title Search → Hidden liens = your problem.
❌ Trusting Seller’s Rent Estimates → Verify with 5+ comps.
❌ Ignoring Inspection → $20K foundation repair surprises.
❌ Buying “Subject To” Without Lender Checks → Loan acceleration risk.
❌ Not Checking Neighborhood at Night – Safety issues hurt resale.

📥 Downloadable Checklist

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