Well-informed investments in single-family rental properties can deliver excellent returns under the right conditions. In real estate, “well-informed” translates to performing comprehensive due diligence and going into a deal with your eyes wide open. No amount of research can guarantee that you won’t encounter issues with a property after you’ve purchased it. However, taking the time to investigate everything from the home’s condition to the economic climate and trends in the area can help reduce the risk of unexpected financial setbacks.
The most effective due diligence is performed following an objective, proven process. It should be conducted the same way and to the same degree with every property you are evaluating. As many real estate investors discover, Murphy’s Law that “anything that can go wrong will go wrong” certainly applies to real estate and due diligence. Cut corners on any aspect of your research and something in that area is likely to come back to haunt you.
A Time-Tested Due Diligence Checklist
Check all eight boxes on the list below and you can go into a single-family rental real estate purchase with the confidence that you have done all you can to ensure you are making a smart investment.
1. Evaluate the market. Use your own online research plus insights from real estate agents, appraisers and others in the industry to get a good feel for property values in the area and how they’re trending. If the trend is flat or downward, is it likely to continue? Are you buying a bargain that will yield good returns, or should you look elsewhere? Is there an impending change in the market that will drive higher property values (the arrival of a large company that will bring many jobs to the area, for example), and can you hold the property long enough to benefit form the change?
2. Tour the…