In real estate investing, there's a timeless saying: "You make your money when you buy." This wisdom highlights the single most critical phase of any acquisition—the due diligence period. This is the timeframe after your offer is accepted but before the deal is final, where you have the opportunity to verify every claim, inspect every corner, and truly understand the asset you are about to purchase.
Failing to perform thorough due diligence is the number one mistake that turns a promising investment into a financial nightmare. To protect your capital and ensure you're making a sound decision, here is the essential checklist every investor in Edmonton should follow.
The Financial Diligence Checklist
This is where you verify that the numbers presented by the seller are accurate and sustainable.
1. Verify the Rent Roll and Leases: Don't just take the seller's word for it. Request a formal rent roll and copies of all current lease agreements. You need to confirm the monthly rent for each unit, the lease end dates, and the amount of any security deposits being held. Are the tenants on fixed-term leases or month-to-month? This is crucial for understanding your future income stability.
2. Analyze the Operating Statements: Ask for the property's profit and loss statements for the last 12-24 months (often called a "T12"). Scrutinize the seller's claimed expenses for property taxes, insurance, and utilities. Are they reasonable, or do they seem unusually low? Be prepared to get your own insurance quotes and verify tax amounts independently.
3. Confirm the Property Taxes: Don't rely on the seller's information. Go directly to the source. You can check the City of Edmonton's property tax records online to confirm the exact annual tax bill for the property. This is a significant expense that must be accurate in your calculations.
4. Vacant Property: If the property is vacant, do not take your Realtor's word on "potetial rent". Do your own research, check various websites, look around the neighborhood on other rental properties, etc.
The Physical Diligence Checklist
This is where you uncover the physical condition of the property and budget for future costs.
4. Conduct a Professional Home Inspection: This is non-negotiable. Hire a qualified home inspector who has experience with investment properties. They are your eyes and ears, trained to spot potential issues with the foundation, plumbing, electrical systems, and more that you would likely miss.
5. Determine the Age of "Big-Ticket" Items: Your inspection report should help, but specifically find out the age and condition of the most expensive components of the property: the roof, the furnace(s), and the hot water tank(s). A furnace nearing the end of its 20-year lifespan is a major capital expense you need to budget for.
6. Look for Signs of Water Damage: Water is the number one enemy of any building. Look carefully for staining on ceilings, soft spots around tubs and toilets, and signs of moisture or efflorescence (a white, powdery substance) on basement foundation walls. Past water issues can signal major underlying problems.
The Legal Diligence Checklist
This is where you ensure the property is compliant and that you are legally protected.
7. Confirm the Legality of All Suites: In Edmonton, a basement suite must be a legal suite to be rented out lawfully. This is a critical distinction. Verify that the suite has the proper city permits. An "illegal" or "in-law" suite could be shut down by the city, instantly destroying your property's cash flow.
8. Review the Real Property Report (RPR): An RPR is a legal survey document that shows the property boundaries and the location of all structures. You need to ensure there are no encroachments (e.g., a garage built over the property line). The RPR must have a stamp of compliance from the City of Edmonton.
9. Check for Open Permits: Use the City of Edmonton's online portal to check if there are any open or expired permits associated with the property address. An open permit from a past renovation could become your problem to close out and pay for.
10. Understand the Zoning: While less of an issue for a simple duplex, it's important to understand the property's zoning. Does it allow for your intended use? Are there any future zoning changes planned for the area that could impact your investment positively or negativel
Due diligence is your shield. It's a systematic process of verification that protects you from costly surprises and gives you the confidence that you are buying a quality asset. Never skip a step.
Feeling overwhelmed by the due diligence process? This is where we excel. Our property analysis service includes a comprehensive review of these checklist items. Book a free consultation to ensure your next investment is a secure one.
Add comment
Comments