Physical due diligence checklist

When investors think of physical due diligence, they often only think of an actual walk-through of the property with an inspector. Walk-throughs are a part of physical due diligence, but only a tiny part of it. You have quite a bit more to think about and do. For instance, ask the seller for the following items:

i Site plans and specifications: This group of documents includes all the construction documents, building plans and schematics, floor plans, and land use documents. These docs provide a road map of the property's inspection for when it was first built, how it was built, and for what purpose.

i Photos of the property: Photos of the exteriors, interiors, and the surrounding land and structures should be taken. Digital aerial photography is widely available and aids in showing the placement of property within neighborhoods and in between highways. Having photos allows you to start putting together the pieces of the puzzle and knowing what's in your vicinity can only help you in determining what obstacles you may be facing now or in the future.

i A structural inspection: Inspect the walls, roofs, and foundation, and make sure there are implements in place for earthquake safety. This inspection counts as the exterior and interior inspection. Allow a professional inspection company to guide you in this inspection.

il An interior systems inspection: Inspect the interior of the property for wear and tear, including items such as doors, doorways, windows, and weatherproofing. Then inquire about the age of the roof, any building code violations, government compliance (such as physically impaired requirements), and site improvements.

I A mechanical and electrical inspection: Make sure that every mechanical and electrical system is inspected. Such systems include heating, ventilation, air conditioning, plumbing systems, and all electrical power systems and controls.

I A list of capital improvements performed: Obtain receipts and documentation of any capital improvements that were made over the last five years. This documentation will help with the clarity and assessment of the physical inspection and allow you to project when parts of the property may need repairing or replacement within the next few years.

I A pest inspection: On some types of buildings, an inspection for pests, such as termites, may take place. Most apartment buildings have this inspection done as part of a lender requirement. If termites are found, the building is chemically treated.

Hiring inspection professionals to undertake the engineering side of your due diligence requires some skill in itself. Hire from reputable companies that specifically inspect the type of property that you're considering. Check out their licenses and certifications as well. Get recent references from the company and look for happy and satisfied customers. You should interview at least three companies and ask for sample inspection reports from each before making a final decision. Enter "commercial property inspection" into your favorite search engine to find a few companies to get started.

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