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Reviewing Historical Financials During Due Diligence | International Residential Real Estate Investors Association
Monday January 22nd 2018

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Reviewing Historical Financials During Due Diligence

First, relying on the current owners’ historical financials for an expectation of your operating expense is fraught with risk.  Essentially, you are making the assumption that you can and will operate the property  in very much the same way the seller is.  This assumption can prove incorrect for a wide range of reasons.  The risk averse investor must bring a clear understanding of their expenses to the closing table and be guided heavily  by this understanding.

This earlier point stated, historical financials provide much needed hints about a given property’s costs for some key areas including: 1) utilities, 2) key  maintenance issues such as appliances and air conditioning, and 3) landscaping.

Your costs for labor and management, cost of supplies, and cost of contractors are brought to the  property by your mode of operating.

The last factor determining your cost is the combination of your physical inspection of the property, the property condition report, your market study, and your operations and management plan.

Each of these items should be combined to create your financial projections.

Blake Ratcliff

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