On the hunt for real estate? Check the due diligence list first – Press Enterprise

Today let’s talk about due diligence.

Simply put, this is a time frame a buyer is given to study a purchase. In general, there is no obligation to continue if something unpleasant is discovered. These 30-75 day periods, also known as a contingency period, a ‘free look’ or in some cases an option, are packed with action.

As a buyer of commercial real estate, you either occupy the property or you simply receive the rent from the tenant. Either way, your consideration of the purchase should revolve around three things: physical, financial and usable.

Physical aspects include things like the roof, mechanical systems, build quality, title and age. Financial features include the amount of rent the tenant pays, operating expenses, financeability, and activation rate.

Finally the utility. Can your operation function successfully? Will the property have a broad appeal to the next resident? And what about the location?

You need to engage a number of consultants to put together your due diligence package. If you’re lucky, the seller will pass a large portion of the deliveries. If not, you start from scratch.

My best example: we once closed a deal in 15 days. Why? The seller had bought the property a year earlier and was able to send us everything we needed to analyze the purchase.

So, potential buyers, what do you need?

—A physical inspection or assessment of the condition of the property

—Environmental Phase I – also known as ESA – Environmental Assessment of Sites

—Mandatory Disclosure Form

—Real Estate Information Sheet

—ALTA Survey

— Soils, geotechnical information

—A preliminary title report

—Review – if you borrow money

—Existing loan information – if you are taking out financing

—Destination Report

—Plans, permits and approvals

-Income and expenses

— Rent roll

— Copies of rental agreements and estoppel certificates

—Financial information about the tenants and guarantors

—Awaiting a lawsuit

—Seismic Survey

-Energy bills

—Association documents, CC and Rs

Once these are all put together, there are three things to keep in mind when you decide to go ahead and complete the trade.

Timeframes: Approval of loans and the components of that approval – assessment, environment, finance takes time. In most cases, it takes about 45-60 days if you and your lender are in sync and you provide your lender with a complete set of information for the approval of your loan.

Make sure that your agreement with the seller gives you enough time for the approval of your loan and that you can extend the term if necessary. While your lender sifts through the numbers, the appraiser scours the market for comparable sales, the environmental engineer checks records of past hazardous applications; you and your team may be busy carrying out the rest of the investigation.

Responsibility: Ultimately, the responsibility for analyzing the purchase rests with you, but you’ll want to hire a slew of advisors to create reports for you. Your lender will generally hire the appraiser and environmental engineer.

I suggest you have a commercial building inspector check the building. You probably want your attorney to review the title report and discuss with you which ownership entity is most beneficial for you.

If you are planning to make any changes to the building, the guidance of an architect is invaluable. The architect can also help you with city permits and ADA itineraries. Building those new offices or adding a truck loading dock requires a licensed general contractor. Team with one early – maybe have the contractor check the condition of the building for you, as well as the commercial inspector.

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