Due Diligence
The investigation and research conducted before acquiring property to verify condition, ownership, value, and any issues that might affect the purchase. Thorough due diligence protects buyers from costly surprises after closing.
Understanding Due Diligence
Due diligence in real estate encompasses all investigation performed before committing to a purchase. For curative title work, this includes title research, but also physical inspection, financial analysis, and market evaluation.
Title due diligence involves: chain of title review, lien searches, judgment searches against current and prior owners, tax status verification, easement and restriction review, and survey review. The goal is understanding exactly what you're buying and what it will take to achieve clear title.
Physical due diligence assesses property condition: structure, systems, environmental issues, code violations, and needed repairs. Many tax sale and curative title properties cannot be inspected before purchase, making post-purchase inspection critical.
Financial due diligence analyzes the numbers: purchase price, carrying costs (taxes, insurance, maintenance), curative costs, time to clear title, exit value, and return on investment. Sophisticated investors model multiple scenarios.
Skipping or rushing due diligence is the primary cause of failed investments. What you don't know can destroy a deal's profitability.
Real-World Example
Before bidding at tax sale, an investor performs due diligence: drives by the property, searches title records online, checks tax status, looks up any code violations, reviews comparable sales, and estimates total investment versus exit value. The analysis reveals environmental contamination concerns, and the investor passes on the property.
Texas-Specific Information
Texas tax sales are 'buyer beware'—no warranties or disclosures. Physical inspection before sale is usually impossible. Texas provides robust online records in most counties: appraisal district data, deed records, and court filings. Thorough online due diligence before bidding is essential. Post-purchase, Texas investors should immediately inspect and address any issues discovered.
Related Terms
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