Conducting a comprehensive and excellent due diligence analysis does not always save you from costly mistakes. It could improve your chances as a commercial real estate investor when you know how to follow the right procedure of application. Currently, upcoming due diligence executors could take two weeks to complete the analysis of a project. These speedy exams often have multiple mistakes that could mess up critical aspects of the construction process.
Common mistakes of commercial property due diligence
Assuming lenders will accept third party reports
Private lending firms and banks have specific designations of companies they find acceptable in the provision of survey reports and inspections. Confirm whether your vendor has a preexisting list of fair vendors before beginning the due diligence process.
Sellers will not always disclose the details of the problems of the property before the buyer signs the letter of intent. They may not reveal the information because they assume the prospective buyer will have hesitations against the deal.
The inspection process will reveal possible areas of severe problems and recommendable methods of resolution. Furthermore, the commercial property due diligence in Chicago should include a list of questions and conversations of the exchange between all involved parties. Do not trust that the seller will reveal all the information because an underlying issue may be too severe for you to resell the property to the next owner.
Assuming the property’s code compliance
The only professionals who can determine a property’s adherence to the construction laws are an architect or contractor. Trusting the little knowledge you have about city inspections may leave you with a prominent call for a massive renovation.
Skimping the legal review
Business and legal, due diligence should uncover information about lawsuits from vendors, tenants, and neighboring property owners. Another legal dispute could arise from unrelated business taxable income by the IRS.
It is essential to address all these issues even if the contract makes the seller responsible for any arising issues. The buyer should have recourse for solving future problems after understanding the exact legalities affecting the property in question.
Dismissing the lease
Tenant leases take a significant amount of time in the due diligence process. Calculating how each financial tie of the property contributes to the real value will help you manage a realistic flow of cash. Common leasing complications that affect the property’s benefits include the following:
- Fixed rental prices
- Cancellation clauses
- Caps in certain expenses
- Extended leasing durations
Cutting upfront costs
Understandably, buyers always want to shave a significant amount of commercial real estate property. Paying more upfront means you invest your time and money into resources that save thousands of dollars in the future. An investment in professional evaluation, such as hiring a property tax consultant, has a significant impact on the viability of the purchase.
Exhaustive due diligence
Wasting time on too much commercial property due diligence in Chicago creates significant delays that will cost you a fair amount of money. You will alienate the seller and appear to have an aggressive tactic that shifts their decision to close the deal. Review the revealed information with an expert inspector from Newbank within an acceptable timeframe to close or abandon the deal.
Commercial Property Due Diligence Chicago
View Larger Map