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Due diligence is necessary when purchasing a rental property

Many find it desirable to add a rental property to their asset portfolio. It provides revenue not tied to the peaks and valleys of the stock market. Not only can it passively generate rental income and cash flow, but it ideally will also appreciate. There may be valuable tax write-offs as well. Perhaps, the owner even finds that they have a knack for buying property and making it profitable.

However, missteps in entering the commercial real estate market can lead to serious economic consequences. Prospective buyers should proceed with caution.

Performing due diligence

While there may be great opportunities for those who can quickly secure financing and close below-market deals, it is always best to ensure that the property is the right fit and does not have costly issues. Due diligence can alleviate these concerns:

  • Research the property, title and deed
  • Pay for a thorough inspection
  • Perform a risk assessment
  • Examine existing leases for similar properties
  • Determine if the property is compliant with local and state zoning

Guidance can also help avoid mistakes

Real estate agents and other experts know how to value property, but each professional will offer a different opinion, so it is wise to consult someone not directly involved in the transaction who understands the commercial market in the area. It can help alleviate some risks. Working with a real estate law attorney to negotiate an agreement that gives the buyer the most possible legal protection is also helpful.