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Understanding the Closing and Due Diligence Process
There are 3 Major Inspections you need to do during the closing part of a real estate transaction:
- Title inspection
- Document inspection
- Physical Inspection
When a piece of real estate is sold, a bundle of rights is transferred from one owner to another through what’s known as a deed
Easements and covenants on title are fairly commonplace, whereas a lien on a title is a make or break addition
So a clear title is one that is free of liens, meaning another party has the ability to foreclose on the property
Title Company or Attorney:
- Title insurance covers financial damage that may be caused by the title
Document inspection:
- More or less to review depending on the type of property
Seller disclosures:
Seller’s tax returns are a very truth-telling document
Current leases if the property is a current rental property you want to inspect the lease thoroughly because remember that the lease comes right with the property
Current rent roll: list of all current tenants, their rent amount, move-in-date, and lease arm's length
Tenant Estoppel Certificates: a form that existing tenants fill out,
Current year’s tax bills -> be sure to verify that the tax amount you run your numbers with is the actual tax amount
Recent utility bills -> utilities is a potential expense that can transfer over to the new landlord, so make sure to ask for a recent utility bill, or at least call the utility company
Security deposits -> if the property is already rented, make sure you verify the security deposit amount
Recent or current maintenance on the property -> this will help you get a gage on what work needs to actually be done or what work is just being deferred by the owner to make the expenses appear less than they are
HOA documents -> you must review the HOAs declaration of documents, covenants, and restrictions, which are more commonly referred to as the CC and Rs.
