NJ Investment Properties 101, Part 7: Due Diligence for the Investor

Do you your due diligence when investing in NJ real estate. I’m sure you’ve heard that before, but what exactly is due diligence? A simple definition: The investigation and verification of the details of a particular investment. Start the process before the offer, but in the offer itself you also will want to include clauses which reflect your research and allow you to have inspections done, look at certain documents, and review the books.

Due diligence should always include a look at the books. Review the last 24 month’s income and expense statements. Look for anything unusual, like expenses that are too low or income that seems higher than usual. Look at the rent roll, and investigate whether rents are over or under the market rates for the area you are in. Check out the payroll records if there are employees. Look for suprises like accrued vacation time that you will have to pay as the new owner. The possibilities are endless.

Always verify income. You want to see rental agreements signed by the tennants, as well as rental histories, which might show is there are any problem tennants or late payments still due. Documents for rental deposits should show amounts and where the depositis are.

Look at the service contract agreements. Ask if they transfer, or if you are free to change to better (cheaper) services. Among others, these will include property management, landscaping, snow plowing and removal, pool cleaning and service, and heating and cooling system maintenance agreements.

Do your initial exterior inspection. Walk around with a pen and paper and note anything unusual or in need of repair. Arrange for a professional inspector when needed. Be sure that the electrical and plumbing systems are up to date and meet surrent codes. Find out the viable life of the roof. Pay attention to windows, landscaping, and paint. Other factors that may come into play are incumberances (incroachments from surrounding landowners such as walk ways, gardens and fences), oil tanks (above ground v. below ground), and water supply (public v. well), and sewage system (public v. septic).

Your due diligents should include an interior inspection as well. Meet some of the tennants if you can. Look for any problems you’ll have to fix in the coming years. Look for water damage, fire damage, pest problems, wood eating insects, and of course “problem tennants” and “problem apartments.” Are there empty units that are listed as occupied? get the necessary pest and safety inspections. Many towns in NJ have fire marshalls who will inspect a home for little or no cost to verify that it meets currant codes.

Call authorites. Ask about any zoning issues or permit problems. Have there been (fire) code violations? Have they been fixed?

It is bes tto use professional help when doing your due diligence. Your accountant can decipher the books better than you, and notice anything that doesn’t add up. A lawyer can review your offer and other documents. A NJ licensed Realtor can find the properties and show you what your money can buy, compare to other properties, and set you up with loan officers, lawyers, appraisers, inspectors and other professionals needed to complete the transaction of your NJ investment property.

Learn more about investment real estate by contacting Dan Kurland at dkurland@weichert.com or call any time at (732) 233-6969.

To check out other articles in the NJ Investment Properties 101 series, click on any of the below links!

NJ Investment Properties 101, Part 1: Know Your Time

NJ Investment Properties 101, Part 2: You ARE Your Network

NJ Investment Properties 101, Part 3: Financing

NJ Investment Properties 101, Part 4: Achieving The Right Price

NJ Investment Properties 101, Part 5: Know Your HUD

NJ Investment Properties 101, Part 6: Investing in a HUD Home