If you’re engaging in commercial real estate deals, you may have heard the term “due diligence.” But what exactly does it mean, and why is it so important to do your due diligence before entering a major deal? A Long Island, NY real estate closing lawyer from our firm can tell you what you need to know.
What Exactly Does Due Diligence Mean?
Due diligence is a stage late in the deal-making process. This is the step where you take the time to make sure that you fully understand the risks of this deal and that you accept them.
If you are investing in commercial real estate, there is going to be some risk. Different investors have different levels of risk that they are willing to accept. You need to figure out what level of risk is acceptable to you and approach due diligence accordingly.
What is Involved in Due Diligence?
Essentially, due diligence is a checklist that investors can use to fully understand how regulations, taxes, and other factors can affect the potential profitability of this investment. It’s important to take a look at documents like:
- The property condition report
- Utility bills from the last two years
- Current title policy
- Property tax bills from the last three years
- Any information about property tax incentives or assessments
- Any government-issued documents relating to the property, including code violations and permits
- Any environmental and energy reports
Spending some time investigating the property itself is also a part of this process. You need to see if the construction and development plans suit this property well. You can also make sure that the property is compliant with the Americans With Disabilities Act. If it’s not, the cost of getting up to ADA compliance might be something you need to account for.
What Are the Benefits of Doing Due Diligence?
Learning everything that you can through the due diligence process is obviously beneficial. If you are investing in commercial real estate, you are preparing for some risks, but there’s no reason to leave yourself open to surprises that can drastically affect your investment.
As an example, you do not want to try and figure out how profitable a property can be while leaving elements like utilities and tax incentives out of the equation. Maybe utilities are higher than expected, or maybe a tax abatement affected how this property was evaluated before. These are things you want to know.
Do I Need a Real Estate Attorney?
Having a real estate attorney on your side is practically a necessity. New York real estate deals can be complex, and you want to be sure that you didn’t miss anything potentially problematic when you are signing contracts. A lawyer is an expense, but it’s one that is more than worthwhile because moving forward without qualified representation could cost you far more money in the long run.
Contact Our Law Firm Today
So if you are thinking about entering the commercial real estate market, get the help of a seasoned attorney before making any major deals. Contact David A. Gallo & Associates LLP and schedule an appointment with our team today.
