The Top 5 Critical Investor Project Due Diligence Elements

Identifying the right project, paying the right price, understanding what the project needs, knowing how to manage the project, and achieving the right exit is always the key issue for investors. Working out these areas are the keys to great project due diligence.

The due diligence actions seek to answer these questions in one fashion or another. Because due diligence seeks to answer these questions, relying on bank required documents as the core of due diligence fails investors because the bank's focus is on value which relates to the right price, but may fail every other point the investor plan addresses. Effective investor due diligence assumes an entirely different character answering the 5 points introduced - project type, price, need, management plan, and exit. Project type requires analyzing the project, the submarket, the resident base, and any other issues the investor considers a component identifying or describing their desired target project. Project issues include age of the property, traffic visibility and volume, floor plans, resident demographics, surrounding area neighborhood, shopping, and entertainment. The variety of project type issues derives from investor project selection criteria. The degree with which projects fit the criteria determines whether they meet investor expectations and goals or not. The right price may be effected by issues other than the appraisal and actual cash flow.

However, conservative investors place actual project value high on their list of selection drivers. Knowing the needs of a project drive capital requirements, renovation plans, management and maintenance staff plans, and provide a core element of the business pro forma. Project needs are a function of historical performance, repositioning goals, and long term investor return considerations. Understanding and delivering on management needs of a project derive from current project condition, the neighborhood, size of the project, amenities, service plans, renovation expectations, and many other factors. Developing a management plan can determine the success or failure of the rental project. Project plans call for varying hold periods and in some cases investors expect to keep a project for generations.

Nevertheless, at purchase, smart investors consider the exit for a project. The major risk of failing to consider exist is stranded capital. A project can offer outstanding long term cash flow and income yet not be saleable. For example a project might offer a strong day to day profit success serving a remote employment center, but by virtue of the remote location prove difficult or impossible to sell. Wise investors consider the elements of due diligence in total because the global perspective offers the best path to realizing income, asset value, and capital return goals and the lowest risk approach to projects.

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