Being a due diligent real estate investor surely entails a more robust action than merely doing your homework. Homework may be no more than a minimal exercise or effort and well below that certain standard of care that should be expended to insure the success or competency of a certain task or transaction at hand. Due diligence is a reasonable review or investigation of a certain deal and of a principal’s offering it before the transaction is finalized to confirm the worthiness of the investment while acting within a certain standard of care. It is the action deemed to be reasonable in order to accomplish the task at hand and protect the principal’s proprietary interests involved.
The term due diligence has different applications depending upon the particular circumstances that warrant diligence, where it is being applied, and with whom or for whom the action is being taken. At its very core, the concept of due diligence not only implies investigation and research, it manifests the necessary action to accomplish what ought to be determined as a matter of that standard of care and it requires that it occur in a certain way at a very minimum, Conducting due diligence properly, thoroughly, completely, and robustly can be daunting and require an expenditure of time and resources of the principals as well as others and has to be a part of sound business expectation and planning.
Due diligence is, in essence, the process of systematically researching and therefore verifying the accuracy required to confirm acceptance of a task at hand, to validate the propriety of an action, all to ensure a certain endeavor while accessing the attendant risks accordingly. Due diligence cannot ensure success of effort or goal sought but it can and will improve the odds of success. Risk can never be entirely eliminated through due diligence and success can never be guaranteed. In fact, an effort of due diligence can be overdone, micromanaged, and result in analysis paralysis and deals never being done.
Clearly, it is sound business practice to be diligent when buying real estate. It can be the thorough research, assessing risk and reward, and confirming value before a transaction may be finalized. It can refer to the contractually stipulated time frame for a buyer to investigate the transaction before closing and review all the seller’s documents. It likely will cover a title review, property inspection, and applicable comparative analysis. What constitutes reasonable and appropriate due diligence for any real estate investor will depend upon, in large measure, whether it is a commercial or residential purchase, what the tasks are at hand, what the transaction entails, what the end game may be, and what the assessed risks and considered rewards may be. A brief example pertains to a buyer who would need to ensure that he or she knows what is at stake and what is being purchased.
This is a most opportune time to be a real estate investor and explore the advantages of a real estate purchase. Seeking and exploring those opportunities, weighing the attendant advantages along with the concurrent risks is all a matter of applying due diligence so the best considered decisions are reached and maximum positioning for building wealth and security can be assured. It is so much more than going through the motions of a cursory review of what is at hand. It is a matter of being due diligent.