Benjamin Franklin once said that “diligence is the mother of good luck”. This is as true today as it was in 1776. When you conduct proper due diligence, you remove the risk from your investment’s success or failure. So what are some of the overlooked aspects of doing outstanding due diligence on a single-family home investment?
There is no substitute for the power of real testing for demand. Theoretical concepts don’t pay the bills, and if you can’t rent the home then you will never be successful. So how do you do a “test ad”. Simple. You run an ad in the classified section of the newspaper that says “[NAME OF SCHOOL DISTRICT OR NEIGHBORHOOD] #BEDROOMS/#BATHROOMS for rent. $PRICE. (XXX) XXX-XXXX”. Run it for 10 days and use a phone number that is a Google number or Grasshopper number, which are disposable. At the end of 10 days, see how many unique calls you got (remove duplicate numbers) and that will give you the results. All calls go to the disposable number which transcribes the call and the message. You never answer the test ad line yourself. A result of 20 or so is considered good.
Talking to Neighbors
When you drive around the neighborhood, you’ll typically see people out in their yards or on the street. Take this opportunity to ask them what they think of the neighborhood as a potential homebuyer. This will give you a huge amount of insider data as to what people really think of the area and whether it’s on the rise or the decline.
After Hours and Weekend Visits
Don’t just visit the property in the sterile hours of 9 to 5 when everyone is at work. Instead, drop by at night or on weekends, when the residents are actually home and in their yards. You can learn a lot from coming by after hours, and neighborhoods that seemed safe and quiet can become scary and loud when night time approaches. More than one investor has been saved from making a poor purchase by dropping by on the off-hours.
Due diligence is always important. But a good home buyers will take that to the next level and try these ideas to get the best handle on future performance.