Due diligence question - Posted by Johnny

Posted by Lyal on September 09, 2005 at 09:51:45:

Thanks CG,
That’s an interesting connection. I’ll have to do the math and see where things fall in my locale.

Due diligence question - Posted by Johnny

Posted by Johnny on September 09, 2005 at 05:00:42:

I’m just getting started, have read a fair amount but one detail I’m wondering about. Not having enough experience to do a quality appraisal or inspection myself, it seems like I’ll have to spend maybe $800 or so on every house I’m interested in, whether or not I wind up making a deal.

Here’s what I’ve gathered so far about “Due Diligence”

  1. Get an appraisal $$
  2. Get an inspection $$
  3. Have contractors out to quote repairs
  4. Get title, etc checked $

Anything I’ve missed?

AND the big question…am I right in thinking $800 on every house I’m interested in? Something doesn’t work out, I kiss the money goodby and repeat the process on the next one?

Re: Due diligence question - Posted by Lyal

Posted by Lyal on September 09, 2005 at 06:19:59:

I’m afraid with that approach, you’ll spend a lot of money before you buy any property. Just a couple thoughts early in the morning…

First, you need to learn your market so you can gauge home values yourself. An appraisal is just one person’s opinion of value and may or may not be accurate. Look at a LOT of houses (100+) and track some of the ones that have sold (public records at the courthouse) and you’ll start to get a feel for value.

Same with repairs. You need to get a handle on what to look for and how much it costs to fix stuff. Spend some time at Home Depot getting a feel for what materials cost. Take some of their free classes. Talk to contractors.

Caution: Maintain your perspective!! It is NOT necessary to fix things as if you were going to live there. It should look nice but, in most cases, you don’t need the maple cabinets and 6 panel doors.

Armed with the ability to put a value on the house and “ball park” the repairs, you can make offers on property contingent on due diligence. That way you don’t waste time and money on people who are not motivated to sell.

If, after your offer is accepted, you want to have an inspection done, fine. If anything turns up that sours the deal, you can always go back and see if the seller will re-negotiate. If not you’re down the road to the next one.

Find a contractor who will walk through the home and give you a “guesstimate” on what repairs will cost. Then DOUBLE THAT AMOUNT (trust me on this).

Don’t forget to include holding costs (taxes, utilities, insurance and payments you’ll make while you own the property), and cost of re-sale in your numbers.

As to the title search, you can learn how to do a preliminary title search yourself. Also, call around to the title companies in your area. Some will do it for free to cultivate your business.


Re: Due diligence question - Posted by Johnny

Posted by Johnny on September 11, 2005 at 13:12:31:

Excellent advice Lyal. Thank you. I’ll take your advice and before I do anything, I’ll start going to open houses, etc until I have a LOT of them under my belt. I’m actually going to print off your post and use it as a check list! :slight_smile:

I’m pretty skilled at cosmetic (and some structural) rehab, having worked on my homes and those of friends for nearly 30 years.

BUT I recognize my shortcomings and no matter how hard I try, I simply cannot estimate how long stuff will take. All the work I’ve done has been based on “Oh, this is a fun project…glad I don’t have a deadline (or a budget!)”. So the idea of basing an offer on my estimating ability kind of “freaks me out”.

My plan is to hire it all done because I work a full time job and simply don’t have the energy or time to do the rehab myself.

I’m not so much concerned about misguessing the paint by 10 gallons, or the cost of a new sink, it’s the “woops” things like foundations, termites, electrical issues, etc that I don’t have the experience to find, and that worries me.

But your advice about testing the motivation with an initial offer, then getting the inspection is a sound one.

Regarding title searches, who do I contact to learn how to do the preliminary myself?

Great response Lyal! - Posted by Caseygump

Posted by Caseygump on September 09, 2005 at 09:34:14:

Lyal, your response to Johnny was very generous and accurate. It’s people like you that make this board so great.
In most cases, I do the inspections myself as you stated.
You will find all of your repair costs will fall into a certain price range per square foot. You can take the total square footage of the home and multiply it by your low end number if it needs minor repair and updating, or multiply the square footage by your high end number if it needs a major overhaul. Each time you evaluate a house, do this math and you will see the pattern I’m talking about. I can’t give you mine because I’m sure different areas of the country have different costs. Good Luck

Re: Great response Lyal! - Posted by Johnny

Posted by Johnny on September 11, 2005 at 13:15:49:

Very interesting re: price per sq. ft. If I can pin that down, it will really spead up estimating. Is there some place I can look to get the ranges, or is that just something based one’s personal history of rehabbing?