Due diligence is one of the foremost responsibilities of commercial reality investors. If you are in the market to buy, it is your duty to honestly and reasonably assess the liabilities and assets of a property you are interested in.
Though this may seem straightforward, there are many mistakes that you can make. Here are three of the most common due diligence errors investors make, and how you can avoid them.
Valuing the property incorrectly
Inflating the value of a property may boost your chances of getting it financed, but it has major consequences that could derail the deal. To calculate an accurate value, look at sales comps and similar properties in the area that are for lease. Base your value on this information and adjust it to compensate if you need to. Providing a value that has not incorporated this information could be fraudulent.
Forgetting to check building codes
There are many building codes that commercial properties in San Diego are subject to. If code violations are not discovered prior to purchase, you are liable for making all necessary adjustments, and this can be quite costly. It is essential that you identify any and all infractions that may need correcting before leasing the property.
Trusting seller to disclose all issues
Being too trusting seems an unlikely downfall in commercial real estate, but it is, in fact, a common mistake. You should never assume that the property's seller or their representative is disclosing all relevant information. It is your responsibility to verify the claims they make and investigate to ensure there are no additional issues not mentioned in the disclosures.
If you are interested in making a commercial property investment, having a legal advocate is a good idea. Contact an attorney for legal assistance with purchasing or selling a commercial property.