At a Glance —
- The results of thorough due diligence inform smart decision-making for our investors
- There are some key documents that aid us in truly understanding our investments
- By performing due diligence, our team identifies potential risks, ensures accurate valuation, conducts market research, and mitigates surprises
- The results of due diligence can lead to actionable insights for the right operators to take a property from mediocre to an investor’s dream
If you’re considering investing in commercial real estate, there are undoubtedly many lucrative opportunities out there. But as with any investment, there are also risks involved.
One of the most critical steps in making a successful investment in commercial real estate is performing proper due diligence. Due diligence is the process of conducting a thorough investigation of the property and its financials before making an acquisition or investment.
This process allows us to uncover any potential for improvement in the day-to-day operations of the business, possible upgrades to the property and predict market trends in the area to bring only the best deals forward to our investors.
What we look for.
Potential risks — commercial real estate investments come with a wide range of risks, such as environmental issues, zoning restrictions, and legal liabilities. We identify potential risks and make an informed decision about whether to move forward with an investment or not.
Accurate valuation — due diligence allows us to know a property’s true value. SageStreet analyzes the property’s income, expenses, and future potential income streams. Additionally, a property condition assessment evaluates the physical condition of the property. This evaluation investigates factors such as the age of the property, building code compliance, and any deferred maintenance. Without proper due diligence, investors risk overpaying for a property or underestimating the property’s income potential.
Market research — we conduct thorough market research to assess the current and future demand for the property. This includes analyzing demographic trends, economic indicators, and competitive properties in the area. By conducting market research, SageStreet gains a better understanding of the property’s potential income streams, identifies any potential challenges, and makes informed decisions about the investment. This helps to ensure that the investment is well-suited to the local market and has the potential for long-term success.
Mitigate unknowns — things like discovering hidden environmental issues or learning that the property’s income potential was overestimated can reduce the returns for our investors. Our operating partners are the best in their respective industry, knowing what to look for and where to look. They get on-site and into the paperwork to bring the most solid deals to the SageStreet platform.
The critical documents.
Property Title — Looking for any liens, easements, or other encumbrances, the title is reviewed to ensure that the seller has clear ownership of the property and that there are no outstanding legal issues that could impact the sale.
Survey — Reviewed to ensure that the property is accurately represented in legal documents and that there are no encroachments or other boundary issues.
Appraisal — A formal appraisal is conducted to ensure that the property is priced appropriately and that the income potential of the property is accurately reflected.
Leases — If the property is currently leased, the lease agreements are reviewed to ensure that they are legally binding and that the tenants are in good standing. This includes reviewing the rental rates, lease terms, and any other provisions that could impact the value of the property.
Financial statements — Income and expense reports are reviewed to gain a better understanding of the property’s income potential and current operating costs. This includes reviewing the property’s income history, expenses, and any outstanding debts or liabilities.
Environmental reports — Are reviewed to assess any potential environmental risks associated with the property. This includes reviewing reports on the property’s soil, water, and air quality, as well as any potential hazardous waste or contamination issues.
This is just the beginning of how deeply our teams dive before any investment is brought to the SageStreet platform.
Bottom line —
Due diligence is an essential step in the process of investing in commercial real estate. It helps investors to identify potential risks, accurately value the property, and mitigate surprises. By taking the time to conduct proper due diligence, investors can make informed decisions and increase their chances of a successful investment.
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