What is Due diligence in Real Estate industry?
According to Mr Agaba Vincent (MD-Avarts Housing Ltd), Due Diligence means going with back checks of prospective clients. In this case, it is both landlords and tenants in order to know who they are, what they do, and the capacity to afford or to manage what they are going to take in terms of service that they require from a real estate company.
Importance of Due Diligence and its worth in Real Estate.
This is a two-way approach;
Here a real estate company wants to know which kind of tenant they are going to rent their building to. Whether an apartment, office, warehouse among others.
Need to look at Affordability; You need to know if the prospective client is able to afford the place and sustain the rent value that they are going to pay?
Good Reputation; You need to assess the prospective clients in order for you to know that they are not going to be a danger to other tenants that are also renting in the same place. More so, to avoid the inconveniences that come along with all mix of these tenants. For example, some people like to party over the night, some prefer being quiet, others have families and young children, others are single, others are older age, senior citizens and others are not. So, if you have a facility which is multi-unit type of building and you want to have harmony in that property, due diligence very critical because you want to mix the tenants in a way that they live in a harmonious environment.
It is very important to know the source of financing. You would not want to get involved in terms of clients who may not be having the right sources of money and they are doing improper things to acquire funds which may endanger you as a realtor who is going to also facilitate that transaction. Some times they promise that they are going to pay in installments, they pay the first installment then fail to clear the pending installments. So, due diligence is crucial to know who are you dealing with in terms of capacity to pay but also not being able to fall into a fraudulent transaction but also leads the realtor in the middle of problems when transaction goes bad.
How Real Estate companies manage to get the information from prospective clients who feel insecure in disclosing their personalities?
For any genuine client should be free and fair to release their information because this is a long term relationship. You are not going to rent an apartment for one or two days, so we need to know your intention. There is what we call KYC – Know Your Customer policy. We need to know our customers in order to serve them better. Well some people feel offended after asking so much information but it is very important for realtors to get that information and they should be able to provide it as a managing company is well aware that this information is private and shall not be released to anyone because the real estate company must convey that confidentiality obligation.
Are these questions provided by the facility owners or it is the managers who come up with these questions?
As you know, property/facility management is a profession and during the courses that any realtor does is to master what they should do and what not. So, one of the innovations is to do due diligence and once done well, it protects the life cycle of the business in terms of occupancy levels and in terms of investment. If you have good mix of clients in terms of tenants, that guarantees right payments on time and that also assures the investor of Return on Investment and which they can also assure their bank or source of capital which they used to develop the property in terms of payment schedules. That makes it good for everybody and at the same time helps the manager on how to deal with these particular kinds of tenants. Meanwhile if we know who the client is, their interests, whether they have a family or not, so we are going to put measures in place to ensure that they enjoy the building to their maximum because of who they are and what they are a test for. It is a management aspect that we the managers must be able to do and advise our clients(landlords) to ensure that these parameters are not costly.
Recommendations to the management companies, prospective clients and all Real Estate practitioners about Due Diligence
Managers owe to be professional. This means that the parties served are all happy. You must know who they are and be able to make them satisfied. Through due diligence, a real estate manager must be able to do that.
Landlords should make sure that their property is entrusted with a reliable company that is good at doing due diligence to ensure that there is yielding of good returns.
Prospective tenants should be able to feel free in availing this information as it is crucial for the well stay at the property.
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