Due Diligence

Due diligence is the investigation a buyer does between contract and closing to confirm what they are buying. For income property it means verifying the income and expenses behind the NOI, so that the cap rate in the offer matches the property that actually closes.

The usual list includes leases, the rent roll, the trailing twelve month statement, bank deposits, tax bills, insurance quotes, utility records, service contracts and an inspection. On commercial property, tenant estoppel certificates confirm each lease's terms and that no disputes exist.

Each finding feeds back into NOI. A tax reassessment, a lease that expires sooner than stated or a roof near the end of its life all lower the NOI a buyer should capitalize. If the verified cap rate is lower than the one you offered on, that is the time to renegotiate, not after closing.