Other Due Diligence Pages

• Apartment Due Diligence Checklist
• Ultimate Real Estate Due Diligence Checklist

Advanced Real Estate Due Diligence Guide

By Brian Gibbons | REISkills.com

Introduction

Due diligence is the most critical phase in advanced real estate investing. It is performed after a property is under contract to thoroughly investigate all aspects of the deal, uncover potential risks, and ensure profitability. This guide provides a step-by-step framework to protect your investment and maximize returns.

“Due diligence is what separates the professionals from the gamblers in real estate.” – Brian Gibbons

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Why Due Diligence Matters

✅ Protects Your Investment – Uncovers hidden liabilities (liens, title defects, structural issues).
✅ Ensures Deal Viability – Confirms market rents, property value, and exit strategy feasibility.
✅ Mitigates Legal Risks – Prevents issues like fraudulent conveyance, undisclosed judgments, or lender acceleration clauses.
✅ Locks in Long-Term Profits – Proper analysis prevents overpaying and ensures cash flow.

Key Rule: Always consult a real estate attorney to ensure compliance with state and local laws.

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The 7-Step Due Diligence Process

1. Check the Comparables (Comps)

Purpose: Determine the property’s fair market value.

• Use recently sold properties (last 3-6 months).

• Match square footage, bed/bath count, condition, and location.

• Avoid “active listings” (they show asking prices, not sold prices).

• Best Sources:

  • Local title companies (free for high-volume investors).

  • MLS (via a real estate agent).

  • Professional appraisal (recommended for new investors).

Pro Tip: If comps don’t support your purchase price, renegotiate or walk away.

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2. Check Market Rents

Purpose: Ensure the property cash flows.

• Get at least 5 rental comps (same neighborhood, similar specs).

• Avoid These Mistakes:

  • Taking the seller’s word on rent.

  • Using “ballpark” estimates from agents.

  • Skipping the rent survey entirely.

• Bonus Strategy: Ask prospective tenants for feedback—they’ll tell you if the rent is too high.

Pro Tip: If market rents are lower than expected, renegotiate seller financing terms.

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3. Check the Title

Purpose: Confirm clean ownership and no hidden liens.

• Order a Preliminary Title Report (also called an “O&E Report”).

• Critical Checks:

  • Seller’s name (must match deed exactly—even a middle initial discrepancy can cause problems).

  • Liens & judgments (IRS, contractor liens, HOA fees).

  • Spousal claims (in community property states like California).

  • Mechanic’s liens (if recent work was done, get lien waivers).

• Title Insurance?

  • Recommended for cash deals or high-exposure investments.

  • Optional for “Subject To” or low-money-down deals (but still do a title search).

Pro Tip: Get the seller’s Social Security Number to run a credit check for hidden judgments.

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4. Inspect the Property

Purpose: Avoid costly surprises (foundation, roof, plumbing, etc.).

• For Big Money Deals: Hire a professional inspector.

• For Lease Options: Seller may handle major repairs—focus on habitability.

• Key Areas to Check:

  • Roof, foundation, HVAC, electrical, plumbing.

  • Mold, termites, asbestos, lead paint.

  • Code violations or unpermitted work.

Pro Tip: If the seller refuses an inspection, walk away.

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5. Check the Neighborhood

Purpose: Ensure demand and future appreciation.

• Key Questions:

  • How long do homes sit on the market?

  • What % of asking price do they sell for?

  • Are there new developments (good or bad)?

• Sources:

  • Local property managers.

  • City planning department.

  • Crime maps (NeighborhoodScout, SpotCrime).

Pro Tip: Drive the neighborhood at night to assess safety.

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6. Run the Numbers (Again)

Purpose: Confirm the deal still makes sense.

• Recalculate:

  • Cash flow (after all expenses).

  • ROI (return on investment).

  • Exit strategy feasibility (flip, rent, lease-option).

• Red Flags:

  • Negative cash flow.

  • Overestimated ARV (After Repair Value).

  • Underestimated repair costs.

Pro Tip: If the numbers are tight, walk away—better deals exist.

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7. Have a Trusted Advisor Review the Deal

Purpose: Get an unbiased second opinion.

• Who to Consult:

  • Real estate attorney.

  • Experienced investor mentor.

  • CPA (for tax implications).

• Skip This Step Only If:

  • It’s a low-risk deal (e.g., $0 down lease option).

  • You’re highly experienced in that market.

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Special Considerations for “Subject To” Deals

Buying “Subject To” existing financing has unique risks:

Pitfalls & Protections

Pro Tip: In community property states, get the spouse’s signature (or Quitclaim Deed).

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Essential Due Diligence Documents

• Property Information Form (track address, legal description, seller info).

• Seller’s “Box” (repair receipts, warranties, loan documents).

• Authorization to Release Loan Info (verify mortgage balances).

• Credit/Public Records Check (find hidden judgments).

• Lease Agreements (if tenant-occupied).

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Final Checklist Before Closing

✅ Title cleared (no surprises).
✅ Numbers still work (cash flow, ROI).
✅ Inspection complete (no major defects).
✅ Insurance secured (you’re listed on the policy).
✅ Seller fully disclosed (no hidden liens or lawsuits).

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Conclusion

Due diligence is not optional—it’s what separates successful investors from those who lose money. Follow this guide meticulously, consult professionals when needed, and never skip steps.

Want More Training? Visit REISkills.com for advanced real estate investing strategies.

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© Brian Gibbons | REISkills.com
For educational purposes only. Consult legal/financial professionals before investing.