CRE Due Diligence Checklist

Due diligence is a term that originates from the legal world, but it has found its place in the business and investment sectors as well. In its simplest form, due diligence refers to the comprehensive appraisal of a business, individual, or deal to establish its assets and liabilities and evaluate its commercial potential. It is a process of verification, investigation, or audit of a potential deal or investment to confirm all relevant facts and financial information.

 

The importance of due diligence for passive investors cannot be overstated. As a passive investor, you’re entrusting your hard-earned money to someone else’s business venture. Therefore, it’s crucial to ensure that the investment is sound, the business plan is robust, and the people managing your investment are competent and trustworthy. Due diligence helps you verify these aspects and more.

 

The due diligence process involves a thorough examination of all aspects of the investment. This includes understanding the business model, reviewing financial statements, assessing the management team, and evaluating potential risks. It’s about leaving no stone unturned in your quest to understand the investment.

While due diligence might seem like a daunting task, especially for first-time investors, it’s a necessary step to protect your investment. It provides a clear picture of what you’re getting into, helps you make informed decisions, and ultimately, increases the chances of your investment being successful. Remember, the goal of due diligence is not to uncover every single detail about the investment, but rather to identify potential red flags that could impact the investment’s performance.