Right now, we’re going to discuss the topic of due diligence.
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: Last week, we were talking about risk aversion and risk reduction. Along those lines, let’s talk about due diligence. There’s a lot of people that are making some quick decisions on purchasing, especially in residential right now. Let’s talk about the due diligence part of that process.
Bob Nelson: Due diligence is, once you have identified a property that you would like to acquire, you typically make an offer to purchase sooner than you have all of the information that would tell you, “Yes, I absolutely want this property.” In fact, if you did all of that analysis prior to the time of making the offer, by the time that you’ve made the offer, it has been acquired by somebody else who didn’t stand around doing the thing in reverse, where they actually did a whole bunch of research and then decided to make an offer and so forth.
So once I’ve made an offer, now I’ve got to figure out, do I really want this property? And that’s the analysis that we refer to as due diligence.
Marcia Edwards: It’s a discovery period, and it’s when you call in the experts in the different fields. For example, the roofer or someone who would crawl a sub floor area. Make sure you understand the purchase. Also, it’s the due diligence of the use or the flexibility of that space. So it’s bare land, for example, or industrial, what type of zoning and overlays are in the area that would prohibit some uses, because that’s going to impact the value of that property and what you should purchase it for.
Bob Nelson: Well, I’ve seen in a number of instances people acquiring property of a commercial or industrial nature only to find out after they’ve made the purchase that they can’t use it for the use that they had in mind. Now, they own it, they get to turn around and try to sell it to somebody else. But it’s absolutely amazing to see that happen. But I guess they just don’t know, and I guess that’s why we have our jobs in part.
Marcia Edwards: That’s right.
Bob Nelson: Because we’re the experts that guide the process.
Marcia Edwards: And a lot of it is about asking the person that knows the property best, the seller, more questions and ask for more information, because there’s a perception of what the value is maybe by rent. But is that triple net? Is that all inclusive rent? What is that? When you look at a number, what does it mean? And that’s what Bob is extraordinarily talented at.
Bob Nelson: Let’s go one step beyond that. In real estate, it’s different from acquiring a stock or a bond. As you acquire real estate, you also acquire the history of that property. If it’s been contaminated, you as an owner may be required to clean it up. So an environmental analysis prior to the time of parking your money is really important.
Marcia Edwards: So now you know enough to call a realtor, I think.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.