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Things To Consider For Due Diligence

When we consider buying a very expensive item like a home or car, we typically do some form of due diligence. Most people are going to check the reliability of the vehicle, the safety rating, mileage, size, etc. Once that basic diligence is done, you can make a somewhat informed decision based on your criteria. Well, the same things apply when deciding to invest in a mortgage note. Here are a few items to include in your basic due diligence. It’s not an all-encompassing list, but it should at least be a good starting point.

One thing you should consider is the economic make up of the neighborhood. Are the people that live in the neighborhood employed? If so, what is the dominant industry? A lot of nurses, teachers, and the military? These are just a few industries that would have steady employment; even if they are not buying a home, they are likely to be renting. This is good if you end up with the asset via foreclosure, you will have a good pool of potential tenants.

What are the demographics of the neighborhood? Is there a high concentration of students, universities nearby, elder people, mostly retired, working class or hospitals around means there may be a high percentage of medical professionals, great schools mean families with children. These are people likely to own their homes and have mortgages.

Let’s look at what the crime statistics are in the neighborhood. Are they high in comparison to surrounding areas? If so, this may be an indication that the schools are likely not great, and the homes may be in disrepair. High-crime areas typically have lower-valued homes.

Look at the transportation situation. Is there public transportation nearby, or is the area car-dependent. This may depend on the area of the country you’re looking at. Larger cities like NYC, Chicago, LA, etc. are going to have premium properties that are close to public transportation. More cities across the country are starting to expand and build more public transportation, so that is an excellent indicator of growth.

Aside from the above items, it’s most important to look into any delinquent taxes and liens on the asset (such as contractor liens, 2nd liens, and nuisance liens from the city or county). This is important because it can further reduce the amount you pay for the note once you factor those expenses into your bid.

You’ll need to get real-time pictures of the condition of the asset. Is it occupied; has it been sitting vacant for years? Nothing worse than bidding on an asset that is not there. Don’t only rely on Zillow pics that are outdated. I have heard countless stories from investors who bid on an asset that was leveled or non-existent. They did not do their due diligence. Don’t be that person.

Lastly, you’ll need realtors, attorneys, and servicers in the state where the asset is located. Not just any realtor or attorney either. See my blogs on why you need an investor realtor and an attorney versed in note investing, foreclosure, etc.

Hopefully, this will give you a little foundation of some basic things to include in your due diligence!

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