Why the diligence matters

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Yesterday, the LA Times had an absolutely horrific story about a couple who bought a duplex and then got slammed by LADBS.

Here’s the piece.

How could this poor couple have avoided the pickle they’re in?

1. Foundation inspection. The retaining wall issue in the back would have been apparent to anyone who does a lot of foundation work. That’s why we always bring foundation contractors to our inspections.

2. Better general inspection. I’m not going to sit here and claim that a good general inspector would 100% catch the roof issue identified by the inspector. But I think the odds are pretty high that one would, because the right people have seen every type of building a million times and can tell when something is “off”.

3. Review of the permit record. Too many brokers / buyers fail to do this. You should really pull all of the permits for a building before you remove your contingencies. Something as obvious as the lack of a CofO for the second apartment would have jumped out immediately.

You might think that it is only a professional investor who needs to conduct thorough inspections and reviews of documentation in escrow. But you would be wrong. You see, I am capitalized such that no problem / mistake in diligence is fatal. Given money and time, any problem on something I buy for one of my funds can be solved.

It is the non-pro who needs to be especially diligent. When you’re plowing a huge chunk of your savings into a property, you probably aren’t holding a bunch of reserves in case something goes wrong. So, you need to be pretty damn certain about exactly what it is that you’re buying.

And that, candidly, is one of the main reasons we’re better than your uncle’s-friend’s-roommate-who-usually-sells-condos-in-Reseda-but-would-love-to-make-the-buy-side- commission-on-a-Silver-Lake-duplex.

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