You do realize there is nothing you can’t check up on with a real estate investment deal, right? It doesn’t matter who tells you something is a good deal, whether they are a saint or a crook, you can decide for yourself whether the deal is legitimate or not.
Real estate investing is, unfortunately, an industry that has had a lot of scams and bad deals in the past, and a lot of shady gurus, so it is very easy for anyone to assume the worst when it comes to who is in this industry. I know that is often the case because when I first got started in real estate, I assumed everyone was out to scam me. That was the only basis I knew to go off of. It actually worked out great to assume I was always getting scammed though because it forced me, in a way, to make people and companies prove themselves to me before I’d move forward. I would go into any opportunity as a total pessimist, and stay that way, until I was convinced otherwise. That actually sounds a little more dramatic than it was… what it really translated to was that I was skeptical going into anything with anyone, and skeptical about anything anyone tried to tell me, but that did not stop me from continuing to dig in. My skepticism did a great job of teaching me to do due diligence.
Investopedia defines due diligence as:
1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to a sale.
2. Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.
My First Real Attempt at Due Diligence
My first real estate investment ever was for a pre-construction development in another country (right? kind of the reverse way of getting started- starting with the hard stuff!). It all sounded good and I didn’t see any obvious holes in the pitch, but once I was presented the sales contract all sorts of skepticism popped up in me and I barely even knew what I was looking at much less what should or shouldn’t be in a contract. I scheduled to meet with one of the guys behind the opportunity and I planned to ask detailed questions then, assuming I would catch the scam. Picture it- brand new investor, no idea what I was talking about or how to act in one of these meetings, didn’t even know if I was going to have to pay the guy for meeting with me. In I walk with a copy of the sales contract, but not just any version of the contract. This version of the contract looked like it had been taken straight from a crime scene with how much red was on it. In red pen I had gone line by line and noted questions I had, which was a lot of questions! It took us quite a while to hit each line, but we hit them all. It was funny because once we were done with all the questions, and all the answers he gave me seemed to make sense, I remember sitting there thinking “hmm, now what…” I hadn’t expected all of my concerns to be taken care of and now that I didn’t have any more unresolved ones, I almost wasn’t sure what to think.
Deep down, I think asking all those questions (although they were good and legit questions I needed answers to) was to see if I could catch these “guys” in some kind of shadiness. I’m of the mindset that you can usually corner a scammer pretty easy and get him to a point of not being able to answer something. On the other hand, a legit guy or company who is for real can answer everything you ask. Unless the scammer is one of those who can talk their way out of everything, but even then you can oftentimes pick up on that being what they’re doing because they actually don’t answer your questions but rather dance around them. In this case, all of the answers were given calmly and made complete sense. I was quite impressed, and semi shocked. This guy might not be a scammer!
To this day, me and that guy still joke about how many questions I showed up with. Especially because I talk to so many new investors now and so many apologize when they ask “too many questions” and I always respond the same way- “The day you show up with more questions than I asked on my first go at this, I will be impressed!” Joking with them aside though, I commend people for asking questions because I would have to think you aren’t a very good investor if you don’t ask anything.
Realizations about Due Diligence since that First Meeting
What I had no idea about back when I started meeting people and companies in the biz, and what I’ve learned in the few years since then, and what I’m going to tell you in this article so you don’t have to take as long to figure it out as I did, is there is nothing you can’t check up on when you are setting off to buy an investment property. You don’t have to trust one word anyone tells you. It doesn’t matter who pitches you a property, whether they are saints or crooks, because who they are has no bearing on your investment. The seller of a property could be a complete jerkwad felon and it doesn’t matter if the property is a good one. Or you could buy a property from your church-going neighbor with a perfect record and a flawless-looking life and end up with a bad property. Who pitches you a property or who sells it to you doesn’t matter. Who gives you advice doesn’t matter.
When I was a beginning investor, I was completely focused on the credibility of the person who was telling me something. I cared more about whether I should trust them than anything else about the investment opportunity or the quality of education I was receiving because I thought it mattered. I know now, however, that it’s not the person pitching you something that you need to check out. It’s the investment opportunity itself that matters. It is the only thing that matters!
For the Newbies
This concept will be harder for you because you likely have no idea what questions to ask or what due diligence to do on a property in order to figure out if it’s a good (and safe) investment. That’s okay, I totally understand. So you will be more reliant on the advice of others in order to figure those questions out (hopefully you’re looking for advice at least, instead of trying to figure everything out on your own). So in that regard, it would be helpful to make sure you are dealing with someone legit. Just know with that though, ultimately, that person still doesn’t matter. The facts about the property you are thinking of buying are what really matter, and that is what you need to be seeking to find out- what are the facts about the property, what facts should you look for, where do you find out those facts?- rather than putting all of your focus on that person or company.