Due Diligence in Note Investing

My friend Doug asked me how we could invest in properties that we don’t see inside of before we purchase them.  So I told him about our due diligence process.  If you have been following us on Facebook lately, you know that we recently had 4 bids accepted on a tape we received.

Narrow Down the States

When we receive a list of assets (tape) from an asset manager, we start by narrowing the list down to the 5 states we are interested in.  From there we keep narrowing down the list based on value of the asset.  We try to stay under 100K in value for assets, concentrating on assets around the 50K to 75K range.  Once we have the list narrowed down, we continue on with our due diligence.  On the tape, we look at the current interest rate, unpaid balance, last paid date, taxes owed, property address and the banks broker price opinion or BPO.  Sometimes, their BPO is not accurate.  You trust but verify their numbers.

Research Assets

We then do our preliminary due diligence. We research the assets through various real estate sites such as Redfin, Zillow, or Trulia.  We also try to get pictures of the property on Google.  From Trulia, we can determine if the property is located in a high or low crime area.  We can use these sites to determine the initial comps based on houses that have sold near by in the last 6 months.  This is just the unofficial comps until we reach out to a local realtor to give us an official BPO.    We also make a determination on what we think the property may need based on the condition of the outside. Typically, we automatically count on paint and carpet at the minimum.

You want to determine the age, number of bedrooms and bathrooms, square footage, and if possible determine when the owner purchased the property.  The longer a person has owned the home, the more emotional ties they have to it.

Check Taxes

Next you want to verify the taxes owed on the property.  If there are a large amount of taxes, you want to make sure it hasn’t gone to tax sale, or if it has, you want to make sure you know how long you have left in the process.  In addition to taxes, you want to see if there are any other liens, judgements, or code violations against the property.

So, once we do our initial due diligence, we can determine our bid price.  Once the bid is submitted and accepted we can start our formal due diligence or a more detailed due diligence.

Get Eyes on the Property

You want to determine whether the house is occupied or unoccupied.  You want to make sure you get eyes on the property.  In our case, Stacey made a road trip to go out and look at each one of the assets. This proved very valuable as some of the assets did not look anything like the pictures we saw online.  He was able to take pictures of each asset, view the neighborhood and see the property first hand.  You can see the videos that he made during his trip on our YouTube channel as well.

If you don’t make the road trip yourself, you can hire someone to go look at the property and take pictures.

Get an Official Broker Price Opinion (BPO)

Next you want an official BPO.  Stacey contacted a local realtor to have them provide the comps and BPO.  A local realtor may even drive by the property and take pictures for us.

Title Report

You need to make sure the property has a clean title, so we contacted Pro Title USA to pull an O&E report which takes 48 hours to process. You want to make sure that the name on the mortgage is the same as the one on the title we well.

Once we have all these things, we can either stay in the deal or pull out if any one of the items does not match our initial due diligence information.

We are in our final stages of formal due diligence.  Stay tuned to see which assets we end up going forward and investing in.

We are always looking for Joint Venture partners.  If you are interested in these or any of our other potential assets, make sure you get in contact with us at Stacey@bikehomes.com.

By | 2017-04-23T11:00:17+00:00 January 20th, 2017|Due Diligence|0 Comments

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