Perfectly performing and delivering due diligence is one of the holy grails of the industry. The fact is there is no such single item. However, for a specific type of investment maybe this is possible or approachable. We can probably agree on a few points. Perfect should include a strong consistent return profile, simple operation and management, and a very low risk profile.
Underlying these characteristics, a project will need to offer consistent long term demand, provide a scarcity that will push value up over time, and be part of environment that can successfully avoid significant cyclical economic weakness.
Grails
Considering consistent long term demand implies a location that:
· Offers high traffic currently and that characteristics of the location will keep the traffic high over the course of time. Major arteries in major cities, cross connections of Interstate roads, or locations near airports and rail centers can offer this feature. Also, locations near walking shopping, malls, major sites, or large entertainment venues often provide this factor;
· Provides easy access to employment, shopping, sites and entertainment. Frequently, this is characterized by being on public transportation, within walking distance, or easy access to high speed roadways; or
· A perceived "high value" address such as the Sand Hill area in San Jose, Park Avenue in New York City, or the waterfront in Washington, DC and other similar areas the world over.
Scarcity is created by constraints. For instance, in Washington, DC, the city limits building height and the federal government owns a large percentage of land preventing development. Or, in New York City, Manhattan is not getting any larger and even the weaker areas have become high demand locations. Waterfront locations near popular beaches are good examples of this phenomenon also. Essentially any area with constrained development because of other area factors can experienced enhance value by the scarcity effect.
Certain locations are so strong that even when the economy weakens or other factors disastrous for other properties occur, these locations continue to remain strong. For example, locations on Wall Street are always in high demand, frequently national capitals demonstrate this because of counter cyclical stimulous that occurs in these areas. Some areas in the San Francisco area have demonstrated this as these locations rebounded strongly even as the housing crisis lingers on.
With these points in mind, the key to near perfect due diligence is in correctly targeting the right areas to assure underlying strength even when faced with a range of economic, social, and business issues.
The Perfect Rental Property Due Diligence Plan
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