In the classroom today, Dave Pelligrinelli comments on how due diligence can help you predict upcoming risks and fix them before they become a major problem.
Whether it’s a repair, property inspection, or research, by looking into it early, it can help save you money and time.
Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Dave: Hello, FlipNerd fans. This is Dave Pelligrinelli, your host for this edition of the REI Classroom. Stand by for another great subject right after this break.
Mike: This show is sponsored by PassiveRental.com.
Dave: Okay. We’re back. This is Dave Pelligrinelli from TitleSearch.com and AFX Research. Today, we’re going to talk about risk radar, using due diligence to defend yourself and your deals from having problems, expenses, costs, or something else that could really turn a good deal into a bad one.
In the same way that a ship or an airplane or even the weather reporters use radar to project the future and sort of help guide them away from risks, you can use different types of due diligence to see upcoming risks, whether they’re expenses, whether they’re diversions from doing the deal, kind of like the Titanic hit the iceberg, you want to see those things in advance so you can steer away from them.
All the risks that are out there, title risk, repair risk, extra expenses, cost of doing the deal, can be seen in advance if you use different forms of what I call “deal radar” to keep you informed of what might be happening.
Property inspections, great example. Seeing if that AC unit is going to blow up, seeing if the foundation is cracked, seeing if a paying problem is more than just paying if there’s mold behind the paying. Title research and analysis. Background on the seller, the property history, permits, those are all examples of radar that you can use to avoid risk on the deal.
The advantages of avoiding those risks using this deal radar are multiple. First of all, it eliminates that expense that you might run into. More importantly, it gives you the confidence to go forward with deals and you could be more ambitious with bidding on a property if you know you don’t have to keep as many reserves because unknowns have been eliminated. You can be more ambitious and that gives you an advantage over other bidders or other potential buyers.
You can also be more confident compared to other buyers in going ahead with that deal. You might pull the trigger a little faster, ahead of another potential competing investor. One example of this, we like to see in many cases, is what’s called lien mitigation. Even if you see a property that has a problem like a lien, if you contact that lien holder in advance, you may be able to get a reduced amount to get that lien off the property. Knowing that in advance gives you some confidence that your cost is going to be less than maybe somebody else looking at it as face value.
Another example is a repair on the property. If you know it needs an AC unit and you’ve worked with an AC contractor, you might be able to get a firm bid or firm quote for a lower amount in advance, if you look in advance, not when you buy the property and now you have to spend full face value on that repair or that lien.
So using risk radar to do some due diligence and perform that elimination of risk will help you lower the cost and give you more confidence on going ahead with deals. This is Dave Pelligrinelli again with a great episode of REI Classroom, look for you on the next version.
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