Over the years, I have met several people who have gone into real estate investment without doing proper DUE DILIGENCE. Today I will be sharing with you the importance of DUE DILIGENCE for a real estate investor
I am sure a number of people reading this have had a fair share of real estate investments that did not go well. While following through with this topic may not be a sure guarantee that you will not have bad investments anymore, it will reduce the quantum or the frequency of failure.
Worst case scenario, it will put you in a position to be on the edge when you come across something not clear or helps you decipher quickly when you come across certain red flags. It is what you use with the knowledge acquired here, that translates into how much of bad investment you can eliminate.
I will go quickly into certain itemized topics which will guide this article while infering a lot from my direct and indirect experiences.
The first thing I observed, has made people lose money in real estate is that most people do not do as much due diligence as they should do. My Number 1 real estate investment rule; ‘Never wave your due diligence’:
Don’t ever think that you can wish it away. No matter who may be introducing the investment to you, regardless of the respect you have for the person; even if that person is me. If you adhere to this particular instruction, you will save yourself a lot of headache and heartbreaks in real estate.
I have seen people who bought properties, and do not even know the location of the property. When you ask them, they tell you ‘my good friend introduced it to me’. If you go further to ask that ‘friend’, he or she may also not have a clear idea of the land. Such deals could be highly risky.
Some people have bought into real estate investments without even visiting the company involved or finding out about them. They wake up years later to realize that their money has gone down the drain. Their refusal to do due diligence has cost them the money.
When investing, you must have something at the back of your mind. People selling are usually in about two categories, they are either positive or negative people. Your fate is sealed when you fall into the hands of negative people, because they usually set out to defraud you. Even at that, dealing with positive people does not guarantee that you don’t lose money.
Your money can still go down the drain with people who are positive in the business, sometimes with their own money too, and in some extreme cases, with their own lives. It explains why some failed entrepreneurs resort to suicide when investments entrusted in their hands fail. But we all know that an act of suicide does not return monies back to their owners.
Such situations happen not because the person is fraudulent but because he probably took some bad investment decisions with people’s money or he also did not do due diligence in his own investments, which then fatally affected other people’s investments.
Invariably, this means that by doing due diligence, you will not only be saving yourself a lot of trouble, you will also be saving people you trust or people who have trusted you (as the case may be) a lot of trouble.
The people I find most interesting to sell to are those who ask lots of questions while I am making my sales pitch. This is because the person will have me take full cognizance and responsibility of those questions asked, cause I know I will be held for it.
I really don’t like those who go into business with sentiments. People who say ‘I don’t need to ask too many questions, after all we are friends, he can’t dupe me’. I t simply means that this category of people are not ready to take responsibility. Experience has shown me that it is this kind of people that will return after a few years to cause a stir on what had already been in the contract for so long, but were not aware because they saw no need to ask questions or read about the investment. Such people are specialist in creating a scene and usually cry foul with claims that they have been swindled, whereas they are the architects of their own misfortune because they passed off their due diligence from the onset.
There is no one who really wants to do a thing without counting the cost. It is in counting the cost that you do due diligence. Don’t do it after you pay, do it before you part with a dime of your money, no matter who you are investing with.
Doing due diligence helps you know who you should invest with, and how to package your investment, and safeguard against any future mishap.
MD/CEO, Realty Point Limited