Buying an investment property without thorough due diligence is how investors get burned. Surprises after closing can wipe out your profit margin or worse. This checklist covers every area you should verify before you commit to a deal.
Property and Title
Order a title search to verify there are no liens, judgments, unpaid taxes, or encumbrances on the property. Confirm the legal description matches the property you intend to buy. If there are easements or restrictive covenants, understand what they allow and prohibit.
Physical Condition
Always get a full home inspection by a licensed inspector. For investment properties, consider additional specialized inspections: a roof inspection if the roof is older, a sewer scope for older homes, a structural engineer if there are any signs of foundation issues, and an environmental assessment if there is any history of industrial use.
Legal and Zoning
Verify the property is zoned for your intended use. If you are buying a single family home to rent, confirm the municipality allows long-term rentals in that zone. If you plan to convert it to a multifamily, check if that is permitted. Confirm all square footage, bedroom count, and improvements are permitted.
Financials for Rental Properties
Request 12 to 24 months of operating statements from the seller. Review rent rolls to verify current tenants and lease terms. Verify all security deposits are being held and will be transferred at closing. Calculate your own NOI and cash-on-cash return using your financing terms, not the seller’s assumptions.
Tenants and Leases
Review every existing lease. Check for any month-to-month arrangements, below-market rents, or verbal agreements. Understand your obligations to existing tenants and whether any tenants are behind on rent.
Local Market Research
Research comparable rental rates to verify the rents you are projecting are achievable. Check vacancy rates in the area. Research any new construction or major employers moving in or out of the area that could affect demand.
Insurance
Get insurance quotes before closing, not after. Some properties are uninsurable or carry very high premiums due to location (flood zone, high-crime area) or condition (knob and tube wiring, old roof). Insurance costs affect your NOI and need to be factored into your analysis.
Final Walkthrough
Conduct a final walkthrough 24 to 48 hours before closing. Verify the property is in the same condition as when you made your offer. Confirm all agreed-upon repairs were completed and that the seller has not removed any fixtures or appliances included in the sale.