You Are A Detective
June 26, 2026
#5 From “The Things I’ve learned In Business” series.
Occasionally I feel compelled to write about something that has the potential to be really boring yet extremely important. Today is one of those times. The topic is Due Diligence. Almost any transaction that takes place will require some amount of due diligence aka detective work. If you don’t believe me, next time you catch yourself reading the ingredient list on a bag of chips or a can of soup (and I strongly suggest you do), think back to that statement I just made and you will understand what I mean. And yet there are people out there who will exercise less due diligence when buying real estate, or a business, or a piece of equipment for their business than they do when buying food.
Starts With A Bag Of Chips
There are many levels of due diligence. The food example is the most basic example I can think of. On the other end of the scale is real estate and businesses. Due diligence is one reason I have to disagree with the “gurus” who insist that you can buy either of those with no money. You can, under a small set of circumstances, make such a transaction without spending any of your own money. But would you really want to? Probably not. Here’s why.
The Hidden Truth
In the real estate example there are certain steps you really want to go through to protect yourself and certain steps any lenders will require you to do to protect them. The same is true when buying a business. You should have $15K to $20K available before you start a deal unless you don’t care about the consequences of buying something that might have unknown problems and could be a financial disaster.
Here are 3 items to deal with on a commercial property that will take up most of that money:
- Commercial Appraisal- an appraisal on a commercial property will typically cost around $4K.
- Phase 1 Environmental Study- for commercial properties to make sure no previous owners have left you with a mess that the government might make you clean up. Also around $4K.
- Survey- A commercial survey will cost around $1500 and can go to as much as $5K depending on what the lender requires. If you do a seller finance or a cash deal it might be tempting to skip this if there's no bank to require it. Don't do it. I've seen many properties where the boundaries were not where the sellers thought they were. That can cause some expensive problems.
That’s just 3 of many. There is a lot of other legwork to do. Basically, due diligence on any type of transaction is detective work. You need to do a thorough investigation into that $500k property you’re buying. Or the business you’re buying. Or anything significant you are spending money on. Are the sellers leaving anything out? Are the financial documents accurate? Is their asbestos in the building? Did the listing agent post old outdated pictures of the building, or are they giving you pro forma numbers(never trust pro forma numbers that someone else gives you). I can provide you with a detailed list of due diligence items if you’re considering buying commercial real estate or a business. Just reply to this email and let me know.
Sometimes It's Just A Phone Call
I can’t begin to tell you how many times as a broker I’ve had to tell real estate investors to call and check with the city before they buy to make sure what they want to do is allowed. Some checked. Some did not. Some got burned because they did not check. Unfortunately, a broker cannot make a buyer do the due diligence and the broker cannot do it for them because of liability issues. It’s just not allowed. Don't be afraid to call in experts to perform certain due diligence functions, especially if you have no experience in that area.
Your Protection
All the due diligence items I mentioned, and many more, are available and strongly suggested for the buyer’s protection. Some are expensive. Some are free. You can apply due diligence practices to any transaction. And if you really think about it almost anything you do in your business is a transaction. Buying, selling, advertising, hiring, and firing. All transactions.
How about your relationships? Would you do a background check on your fiancé before getting married? I know people who wish they had!
Bet you didn’t think I would go that far did you?
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