New BiggerPockets Article: Due Diligence Gone Wrong

So my ongoing quest to make sure every real estate investor does proper due diligence continues. This time, I go over a due diligence disaster we had about six years ago with a house in Grandview, MO. Of the many problems I discuss, the biggest was my underestimation of how bad the basement was,

When we were buying houses just after the Great Recession, it seemed that everyone and their brother was finishing their basements for some inexplicable reason. As mentioned in my article on rental property add-ons, it almost never makes sense to finish your basement.

For one, they are always getting water in them. Additionally, at least in Kansas City, appraisers give you very little credit for a finished basement.

Bedrooms and bathrooms down there might as well not exist. Appraisers certainly aren’t going to compare a 4-bed/2-bath ranch to a 3-bed/1-bath ranch with a bedroom and a bathroom in the finished basement.
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I knew this, but I still didn’t fully account for it.

In the end, we ended up almost 70 percent over budget and upside down in the property!

So don't skimp on due diligence. Instead, follow the checklist I laid out in my article  "The Ultimate Guide to Due Diligence." The checklist, again, looks like this:

1. Pre-Offer Due Diligence
   1. Area Analysis
   2. Value and Financial Estimate
   3. Rehab Estimate
2. Post-Acceptance Due Diligence
   1. Physical Due Diligence
   2. Financial Due Diligence
   3. Legal Due Diligence
   4. Inspections
3. Retrading (if necessary)
4. Final Decision and Walking Away (if necessary)

Follow it, and you'll be OK. Don't follow it, and you could end up with a turd like the one I describe in my most recent article. If are interested in getting into real estate investment, please check both of these articles out.