On today’s show we are talking about reading between the lines.
This is the ability to fill in the blanks when the seller of a property provides incomplete information. Any professional real estate investor has the full information about their own property. If the seller truly lacks the information, then that’s a sign that they have been grossly mismanaging the property. But then you may already know that by now.
When the seller only provides a partial picture, we are left wondering what it means. The fact is, it could mean one of several things.
Some sellers use the shortage of information as a way of signaling to the buyer that they have the upper hand in the negotiation. This is one of those misguided knowledge is power plays.
I will ask the seller if they are interested in selling the property. That usually brings a response like: “Yes, but only at the right price.”
To which my response is, “Great. We are on the same page. In order for me to buy the property, I need to complete my due diligence to justify your price. I will send you the list of minimum information I need to make an offer, and a second list of what I will need to complete due diligence.”
Sometimes, the seller is using incomplete information information as a way of hiding something about the property. By hiding the truth, they believe that they are not lying.
At the end of the day, I rarely rely upon the seller’s information in due diligence. I construct a new financial model that is based on how the property would operate in my hands. After all, I’m going to be using my systems to operate the property, not the seller’s. They are the one selling the property, which means they have a problem. It’s not the buyer who has a problem.
The due diligence falls into a few categories.
- The physical asset.
- Anything recorded on title
- The tenants.
- The operating history.
- Land use restrictions