| We’ve all been there… You successfully get a deal under contract and are excited to move forward. It checked all the boxes initially and passed the first round of due diligence with flying colors. But this is where caution is key. Don’t let initial excitement overshadow the need for thorough due diligence in real estate. Even the most promising deals can reveal unexpected red flags that could jeopardize the entire investment. Here are the top 5 things that will derail a deal at ODC: 1. Weak Infrastructure Discovering poor infrastructure, such as failing water or sewer lines or subpar electrical wiring, during due diligence can be a significant issue. These repairs are not only time-consuming and expensive but also redirect investor capital away from planned improvements. Instead of enhancing property value through visible projects, resources are diverted to addressing unseen infrastructure problems—a major drag on the budget. This is especially important with Mobile Home Communities, many of which were developed in the 60s–80s with original infrastructure reaching the end of its useful life. 2. Recognized Environmental Conditions (RECs) A Phase I Environmental Site Assessment that reveals Recognized Environmental Conditions indicates potential contamination. This discovery can be a major setback, as remediation efforts are typically costly and time-consuming. The need to address environmental contamination can delay project timelines significantly and escalate expenses, adding a substantial amount of risk to the investment. 3. Major Capex Items Outside of Budget Unforeseen major capital expenditures can severely strain financial resources and disrupt the planned budget. Identifying critical issues can exceed the budgeted amount by a large margin, and these unexpected costs can diminish anticipated returns on the investment. For example, we once arrived on-site during due diligence and discovered the Mobile Home Community had TONS of dead trees that needed to either be trimmed or removed for risk reasons. This would have been six figures in tree work, which was one of the many reasons this particular deal didn’t work out. 4. Code Violations Uncovering undisclosed code violations during due diligence is hugely important. These violations can be complex and expensive to rectify, consuming considerable time and financial resources. In addition, the presence of code violations often signals deeper issues with the property, such as ongoing infrastructure problems. They may also indicate a predatory municipality that could be challenging to work with throughout the hold term. 5. Uncurable Title Matters Ensuring clear title is critical before proceeding with any deal. Uncurable title issues, such as bad encroachments or problematic easements, can impede future property use and complicate transactions. These legal issues can create long-term challenges that are difficult to resolve, affecting the property’s overall value and marketability. For more information on ODC’s due diligence process, click here to download our initial evaluation-to-closing guide. |
