When you are purchasing something for several million dollars, it is incredibly important that you give yourself an opportunity to conduct serious due diligence on the isolated asset. At our firm, we have over a 100 point checklist of documents and items that need to be reviewed and cleared before we can close.
No matter what the seller demands, it is important that you thoroughly understand the asset you are purchasing before your deposit goes hard.
We can typically move through a due diligence period on certain assets in less than 7 days, but many times we request 30 or 60 days.
I won’t go through the entire checklist here, but the logic behind our program is simple…
Prioritize and the clear the potential major issues first, then move down the line in order of importance.
We always start with the numbers. We are purchasing an asset based on a certain amount of Net Operating Income, so we need to make sure what we were told was correct.
Next we’ll work on major issues like environmental. An environmental issue can wreck an entire deal, so we always want to clear that immediately. This includes a tank sweep.
We’ll then analyze all leases to make sure there is no potential detrimental language.
We’ll then move along to the major operating systems. Roofs, large HVAC units, and any major deferred maintenance.
From that point we continue down the line until we are satisfied, or feel we need to go back to the seller for certain concessions.
It’s fairly straightforward, but an incredibly important part of the transaction process when major dollars are on the line and you anticipate holding something for multiple years.