Due Diligence Involves Detective and Field Work
{2 minutes to read}
- Sam Liebman
- October 26, 2021
You must have the mindset of an undercover detective while performing your due diligence on a property.
The first thing detectives do is pull the file of potential suspects. They examine the suspect’s rap sheet, prior arrest record, and psychological information in an attempt to create a profile of the suspect. What are the suspect’s tendencies and behavior patterns?
The detective goes out and performs fieldwork. They interview neighbors, storekeepers, and anyone else they can find, asking questions: Did you see or hear anything? In real estate, your suspect is the seller.
The same detective mindset should apply while performing your due diligence on a property. What are the seller’s tendencies and behavior patterns? What makes the seller tick?
It takes work but go out and perform fieldwork Sit in the neighborhood diner, talk to building residents, and people on the street, police officers, and even the town drunk. It is unbelievable how much you will learn by doing this. Many times, the results I uncover will affect my purchasing decision.
Real Life Example:
Some years back, my partner and I were on our way to an attorney’s office to sign a contract to purchase of 20 acres of raw land located in Long Island. We arrived early and decided to take one last look at the property. While driving around the neighborhood, we observed a construction crew working on a new residential development site less than a mile away from the land we were purchasing. We pulled over and started a conversation with the men. I asked how many houses they were building and what the purchase prices were. When I asked why the prices were so high, (in fact, they were much higher than the sales prices I projected), the man replied, “Because this is the last half-acre development site the town will approve since the recent up-zoning to one-acre lots.”
Wow! The new zoning regulations for the land we wanted to purchase would only permit us to build 20 houses on the site, half the number of houses we anticipated building. The results would have been disastrous. The new zoning information should have been part of our due diligence. But we uncovered this information by driving through the neighborhood and asking questions.
Obviously, we did not sign the contract. In fact, the seller denied any knowledge of the recent re-zoning and refused to reduce the purchase price of the land. We later learned that both the seller and his attorney had seats on the town board.
My mantra is to increase your knowledge of real estate exponentially!
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Sam Liebman is founder and CEO of WealthWay Equity Group LLC, a New York-based private equity and real estate development company. He has owned substantial interests in over 70 properties during the past 30 years, ranging from multifamily communities, office buildings and shopping centers, to the ground up construction of a luxury 21-story condominium development in Manhattan. He is also CEO of Rolling Cash Realty, Inc., a real estate management company, as well as a partner in Tepper & Co., a certified public accounting firm. His new book is Harvard Can’t Teach What You Learn from the Streets: The Street Success Guide to Building Wealth through Multi-Family Real Estate (Made for Success Publishing, Jan. 11, 2022). Learn more at samliebman.com.