An Insider's Guide to Real Estate Due Diligence

Here's what you can expect from this course.

This Due Diligence for the Crowd Fund Real Estate Investor training will give you to a deep dive into 9 key review hurdles a sponsor must clear before proceeding with a deal – and before asking you to invest.

This course incorporates extensive use of case studies, spreadsheets, and data to explain the broad array of due diligence items professionals use to analyze deals. In so doing, you will learn what to look for to ensure that a sponsor has been thorough in their work, as well as be provided with tools for double checking key assumptions.

The areas covered are as follows:

1.Project Description

You are going to learn about market and zoning issues, highest and best use analyses, design specifications, repositioning strategies and much more so that you can tell if the proposed project is viable and prudent for its location.

2.Legal Review

Using actual case study documentation, in the legal review section you are going to learn about title reports, environmental hazards, how to review basic legal documents and the key items that you want to be looking for in any contract, and why you still need an attorney but can substantially reduce the cost of using one.

This legal review section is designed so you can drill down on deal breakers in a project before spending too much time AND save money on attorney fees by being efficient with their time.

3.Site Analysis

In this site analysis section, you will examine the kinds of third party reports that are commonly used and why they are important.These include, for example, surveys, property condition reports, soils analyses, environmental reports, grading, and traffic studies so you can recognize the tools a developer has at his disposal and know how to interpret their findings.

4. Regulatory Analysis

In looking at how a sponsor handles regulatory issues you are going to learn about how and why developers need to be in close communication with local planning staff at the city.This so you can understand land use issues, density, parking requirements, variances and the overall entitlement process including local political factors.Once complete you will be able to decide if a project has too high a risk of not being developable as proposed or that it will take too long to be allowed by the city.

5.Market Analysis

One of the due diligence line items most sensitive to error is the market analysis.In this section you are going to learn about independent market studies, use of appraisals, the impact of demographics on a deal, how to build absorption predictions, the importance and use of looking at similar – comparable – properties, and demand and supply factors.

If you are concerned that key proforma assumptions are accurate, then this section will help you assess if supply and demand for the proposed project is going to realistically meet the way the sponsor is saying they will.

6. Cost Assumptions

Building a proforma is more about the quality of the assumptions underlying the inputs than it is about anything else.In this section you will see how how developers select their sub-contractors (lowest bid not always the best option), and how they gather cost estimates from general contractors, sub-contractors, for soft costs and for the entitlement process.

At the end of this section you will be able to decide if there is enough detail in the deal’s budget and that sufficient work has been done to make sure the project does not go over budget – keeping in mind that projects are seldom ever on budget.

7.Proforma

As sponsors flesh out the underlying assumptions, they build spreadsheet based proforma projections.In this section you will learn how they use the spreadsheets to create a roadmap for all assumptions, how to stress test assumptions (and why this important), and overall financial risk assessment.In understanding these skills you will be able to tell how much attention to detail the developer has put in to the deal and how well analyzed are their proposed project.

8.Timeline

Time in money, and in this section you are going to learn about how sponsors employ critical path analysis to plan their projects, the importance of projecting key dates, different types of timeline analysis, and how to use timelines to stay on schedule.Understanding timeline planning will help you to decide if the project has a reasonable chance of being completed in the time that the developer thinks it will – while keeping in mind that they almost never do.

9. Capital

The sponsor needs your capital to proceed with the project so in this section you are going to learn about how to verify that there is enough capital overall to do the deal, and what tools are used to attract debt and equity – this so you can tell if the sponsor has credible financial backing and has already lined up all key finance before coming to you for investment.

Finally, in this course I will share with you a technique to effectively evaluate how thorough overall a sponsor has been with their due diligence.This is something that I learned how to use when I was president and CEO of a JV between Universal Studios and Paramount Studios building out part of their real estate portfolio throughout the Asia Pacific region with a $400 million budget and reporting requirements to two of the largest public companies in North America.The methodology is so robust that I have also used it to remodel my own kitchen.Utilizing this skill you can look at absolutely any deal and discover everything you need to from the developer – including how well they know their own deal.