SHARKS YOU CAN'T SEE - THE VALUE OF DUE DILIGENCE 

THE VALUE OF DUE DILIGENCE

See the official article here: VARING MAGAZINE 2024

 

RULES AND RISK

Fear of sharks, fueled by movies like Jaws, parallels the caution needed in real estate development. Just as there are rules for swimming safely, there are guidelines to minimize risk in real estate. When risks are high, stay cautious and informed.

 

LOOKING BELOW THE SURFACE

Before closing a real estate deal, thorough due diligence is essential. This involves diving deep into all factors affecting property development to identify hidden risks or "deal killers." Emotions like fear can help avoid premature decisions.

 

SHARKS IN A CREEK

A developer's cautionary tale: A rushed decision to invest $1 million based on incomplete information led to a significant loss. Lessons:

1. Avoid hasty decisions.
2. Consult qualified professionals.
3. Check regulations.
4. Verify assumptions.
5. Confirm with planning and engineering departments.
6. Stay humble and thorough, regardless of experience.

 

PROPER DUE DILIGENCE BELOW THE SURFACE

Use a detailed checklist for thorough due diligence to ensure no critical "no go" indicators are missed. This includes legal, engineering, and environmental checks, and confirming planning policies.

 

INFLUENCERS IN THE FEEDING CHAIN OF APPROVALS

Understanding the role of influencers like politicians, regulators, and community members is crucial. Their opinions can significantly impact project approvals, as evidenced by a developer's failed project due to underestimated public opposition.

 

THE CONDITIONS APPEAR PERFECT

Real estate deals often appear solvable, but control in the political arena is limited. If problems require excessive money to fix, it might be wiser to move on. Distinguish between harmless and harmful risks.

1. Differentiate between shallow and deep due diligence.
2. Know which risks are significant.
3. Seek advice from trusted, qualified professionals.
4. Analyze engineering and environmental considerations.
5. Confirm policies and processes with authorities.
6. Assess political and community influence on approval likelihood.
7. Make informed, deliberate decisions based on verified information.

 

FINAL RULE

Don’t fall in love with completing a real estate transaction unless you want to be heartbroken or have a (real estate) swimming experience that makes you not want to go into the water again!