In my opinion, the words due diligence are some of the most important words in the world of financial literacy. It is through the process of due diligence that a sophisticated investor sees the other side of the coin. When people ask me how I find good investments I simply reply, "I find them through the process of due diligence." Rich dad said, "The faster you are able to do your due diligence on any investment, regardless if it is a business, real estate, a stock, mutual fund or bond, the better able you will be to find the safest investments with the greatest possibility for cash flow or capital gains.
In the audio cassette learning program entitled Financial Literacy: How Sophisticated Investors Find the Investments That Average Investors Miss is a workbook filled with very sophisticated due diligence forms that can be adapted to evaluate many investments quickly. If you would like to find out more about this audio educational program and work book, please refer to our website, www.richdad.com. Not only will you listen to very sophisticated investors share their investment secrets, you will learn how to use these due diligence forms. These rarely publicized due diligence forms have the power to not only make you a more sophisticated investor, the forms can save you a lot of time analyzing investments, and they may also help you find the high yielding investments you have been looking for.
For example, once you have determined that a piece of real estate will generate a positive cash flow for you, you still need to perform due diligence on the property.
Rich dad had a checklist that he always used. I use a due diligence checklist created by Cindy Shopoff. It is very thorough and includes items that did not exist 30 years ago (eg. Phase I Environmental Audit). I have included Cindy's checklist as a reference for you.
If I have questions about the property, I often bring in the experts and have my attorneys and accountants review the deal.
Due Diligence Checklist
1. Current rent roster with paid to dates
2. List of security deposits
3. Mortgage payment information
4. Personal property list
Insurance policy, agent Maintenance, service agreement
Tenant information: leases, ledger cards, applications, smoke detector forms
List of vendors and utility companies, including account number
A statement of structural alterations made to the premises
Surveys and engineering documents
Rental or listing agreements
Development plans, including plans and specifications and as-built architectural, structural, mechanical, electrical and civil drawings
Governmental permits or zoning restrictions affecting development of the property
Tax bills and property tax statements
Cash receipts and disbursements journals pertaining to the property Capital expenditure disbursement records pertaining to the property for the past five years
Income and expense statements pertaining to the property for two years prior to the submission date
Financial statements and state and federal tax returns for the property
A termite inspection in form and content reasonably satisfactory to the buyer
All other records and documents in Seller's possession or under
Seller's control which would be necessary or helpful to the ownership, operation or maintenance of the property
Market surveys or studies of the area
Construction budget or actuals
Tenant profiles or surveys
Bank statements for 2 years showing operating account for property Certificates of occupancy Title abstract
Copies of all surviving guarantees and warranties
Phase I Environmental Audit (if exists) For Every Investment
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