Due Diligence Before Buying Rental Property

Due diligence is insurance you buy with time

Every problem a property has is cheapest to discover before you own it. The inspection period exists to find those problems while walking away still costs you nothing but earnest money.

The checklist

• Professional inspection. Not optional. Attend it if you can.
• Title search. Clear title, no surprise liens or easements.
• Property tax review. Reassessments after sale can raise your taxes sharply.
• Rent roll and leases. If tenanted, verify every lease and deposit.
• Utility history. 12 months of bills reveals insulation and HVAC problems.
• Permits. Unpermitted work becomes your problem.
• Zoning and rental rules. Confirm you can rent it the way you plan.
• Insurance quotes. Insurability and cost vary more than people expect.

The red flags that justify walking

• Foundation issues the seller won't let you investigate further.
• A roof at end of life the seller wants to credit rather than fix.
• Tenants on leases you wouldn't have signed.
• A price that only works with the seller's pro forma, not yours.

The principle

A deal you walk away from costs you a little. A deal you should have walked away from costs you for years. Be willing to lose the deal to keep your standards.