What are the Types of Due Diligence?

Oct 13, 2022 | Buying A Home

Due diligence is a critical part of any real estate investing enterprise. The risk of forgoing due diligence is considerable. Various due diligence types help buyers uncover property information and assess risk. 

If you skip due diligence and end up with a bad deal, it can cost you a fortune. This post will look at four types of due diligence vital for assessing real estate deals.

4 Types of Due Diligence

1. Market Due Diligence

This form of due diligence involves research on the local and national market conditions. The study can include demographics, employment statistics, and various market trends. It can help an investor measure the demand for a type of property or assess market value.

The buyer may also consider zoning laws restricting what businesses can operate in the area. Investors might also take an interest in local developments like plans to build new roads, schools, or parks. 

2. Financial Due Diligence

This due diligence involves collecting, preparing, and analyzing all relevant financial data. It aids in assessing real estate (asset deals) or real estate in the form of companies (share deals). The idea is to determine the value of real estate assets. Investors use it to inform purchasing decisions by assessing opportunities and risks.

3. Physical Due Diligence

Physical due diligence involves inspecting the physical aspects of the property. It can include the current condition and a history of maintenance and repairs. 

Hiring a professional inspector is usually required. You need an expert to inspect all aspects of the property’s structure. It should include everything from the roof to the foundation. Finding issues does not mean a deal can’t go through. However, the investor will want to account for the problems in the agreement.

4. Legal Due Diligence

Legal due diligence involves examining legal documents associated with a real estate deal. You would look for deeds, insurance policies, and mortgages. It also includes the tax history of previous property owners and any lawsuits filed against those parties.

The Bottom Line

There is a lot at stake when you engage in real estate deals. We hope this article helped you understand the types of due diligence in real estate. 

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