Due Diligence

Due diligence means checking a property before you are locked into buying it: its condition, title, permit history, likely rent, taxes and what similar homes sold for. In BRRRR it is where the rehab budget and after-repair value are tested, because those two numbers decide how much cash comes back at the refinance.

A contractor walk-through and a full inspection turn the rehab estimate into a scope of work. Comparable sales of renovated houses support the after-repair value, and local rent listings support the rent. Title and permit searches catch liens and unpermitted additions that could stall a sale or a refinance.

Small misses compound. If the appraisal comes in at $470,000 instead of $500,000 on the default deal, a 75% refinance returns about $71,900 instead of $93,750, leaving roughly $22,000 more cash stuck in the property. Running the calculator at a lower value before buying shows how much room the deal has.

Further reading: Due Diligence on Wikipedia.