Tips to Perform Effective Due Diligence When Investing in Commercial Real Estate

Research and due diligence are the keys to the successful property investment. It is not the various schemes like assured return, etc. that is wrong, it is the intentions of a few developers who look for people whom they can cheat and make money. Hence, before investing into any type of assured return property, make sure you check for the following things-

1) Does the property developer have a decent reputation in the market?

2) What is the tenure of assured return payments: for 3 or 5 years, till the project is complete or till a tenant is found?

3) What if the rental is lower than the assured return, would the developer make up for the difference?

4) What if the PDCs given as the assured return bounces?

5) Would it be easy for the developer to find tenants for his commercial property?

There are three key factors that you must focus on when doing your due diligence in commercial real estate acquisitions. Fully understanding these three areas will enable you to be highly successful in acquiring properties.

These three areas are:

1. Verifying the reported income: It is imperative that you prove the reported income by examining each individual rental lease, doing a unit by unit inspection and engaging in a great deal of "sleuth work" utilizing the expertise of a solid management company. Every signed lease being reported by the sellers must be examined for legality and authenticity. If you determine that the current management has a "mom and pop" style, you shouldn't even consider moving forward with the deal because the management transition would be far too drastic and increase the level of risk as the style of management that you would be putting in place will be highly professional and may alienate the current tenants.... unless you are really interested in buying yourself a job. One idea around this: Insist that the sellers place the property under third party management for a couple of months and then purchase the property based on the stabilized numbers reported by the new management company.

2. Verifying the expenses: Knowing the expense numbers of the sellers isn't nearly as important as knowing the expense numbers that YOU will be able to run the property with. This is best determined by obtaining an average/unit expense number from several third party management sources in the immediate area of the property. It is also done by verifying each number that is being reported, including everything from insurance costs to lawn care. All numbers must be verified. Fortunately, most expense numbers that apply to running apartment complexes are fixed costs, such as property taxes, and insurance.

3. Verifying the physical condition of the property: Hire a third-party commercial property inspection company to perform a thorough inspection of the properties that you wish to acquire so that you can best determine what the current and future physical problems of the property may be. This is worth every penny and there is no short-cut around it.

For the first-time investor, it is obvious that at times you will feel that things are getting on your nerves. When this happens, the best you can do is give yourself the necessary time and study all the moving parts of property investing. But, at times even research and due diligence fails (don’t be too hard on yourself, it’s not your field), in such situations never hesitate to take help from professionals who have the expertise in commercial property investments. Take help and ensure you are on the right track.

Another important and straightforward point is, Due diligence is imperative when you are dealing with unknown people, for that matter, it is advised in real estate to invest with big names, who have the reputation of delivering best with best terms and conditions. With that in mind, if you are looking for Best Commercial Property in Noida, we suggest you to explore and invest in Anthurium. Anthurium is a business park exclusively designed in sector 73, Noida for businesses who believe in delivering productivity and efficiency. Once you have invested with Anthurium, you’re ready to action your business growth strategy with confidence.

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