How can you create a due diligence checklist for real estate development?

1 Define your objectives

Before you start your due diligence, you need to have a clear idea of what you want to achieve with your project. What is your target market, product type, location, budget, timeline, and exit strategy? How does your project fit into the local market conditions, regulations, and demand? Having a well-defined vision and strategy will help you focus your due diligence on the most relevant and critical issues for your project.

2 Gather information

The next step is to gather as much information as possible about the land parcel and its surroundings. This may include title reports, surveys, maps, zoning ordinances, utility availability, soil tests, environmental assessments, market studies, appraisals, and any other relevant documents or data. You may also need to visit the site, interview the seller, consult with experts, and conduct your own research. The more information you have, the better you can evaluate the feasibility and profitability of your project.

3 Analyze risks and opportunities

Once you have collected the information, you need to analyze it and identify the risks and opportunities for your project. Risks are the factors that could negatively affect your project, such as legal disputes, environmental hazards, market fluctuations, financing difficulties, or construction delays. Opportunities are the factors that could positively affect your project, such as tax incentives, zoning variances, public subsidies, or competitive advantages. You need to weigh the pros and cons of each factor and determine how they impact your project's viability and value.

4 Create a checklist

Based on your objectives, information, and analysis, you can create a due diligence checklist for your project. This tool is useful for organizing and tracking the tasks, questions, and issues that need to be addressed. The checklist should be tailored to the size, scope, and complexity of the project, and should generally include legal, financial, environmental, physical, and market categories. When it comes to legal matters, you should verify ownership, title, easements, encumbrances, liens, permits, contracts, and compliance of the land parcel and the project. For financial matters, you should estimate costs, revenues, cash flows, returns, and financing options. Environmental considerations involve assessing conditions, impacts, and liabilities. Physical characteristics must be evaluated as well as market supply-demand dynamics and trends for the product type and location.

5 Review and update

The final step is to review and update your due diligence checklist regularly throughout the development process. Due diligence is not a one-time activity, but an ongoing one that requires constant monitoring and adjustment. You may encounter new information, changes, or challenges that affect your project's assumptions, expectations, and outcomes. You need to review your checklist and update it accordingly to reflect the current situation and make informed decisions.

Due diligence is a vital part of real estate development that can make or break your project. By creating a due diligence checklist, you can ensure that you cover all the bases and minimize the risks and maximize the opportunities for your project.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?