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Why You Must Perform Your Own Real Estate Due Diligence

A Costly Case Study: John P.’s Investment Mistake

In 2022, John P., a new investor, purchased a property from an acquisition company intending to fix and flip. Unfortunately, he skipped the most critical step in real estate investing: performing his own due diligence.

Here’s what happened.

Hidden Problems That Went Undetected

No Building Permit: The home was constructed without proper permitting.
Foundation Issues: John later discovered the home had no foundation—possibly only a slab, but questionable from the start.
Encroachments on Neighboring Land: With no survey completed, the driveway, carport, and even part of the home were built on the neighbor’s property.

Financial Consequences

John relied solely on the seller’s estimated value, overpaying by $72,000.
He trusted the seller’s rehab estimate, which fell short by $19,000.
Total losses: $91,000+, before addressing the unpermitted construction and encroachment issues.

The City’s Final Word

When John applied for permits to begin renovations, the city denied approval due to the encroachments and structural issues. Officials informed him his only option was demolishing the home and starting over.

John had already invested:

$140,000 purchase price (with $125,000 hard money financing)
$70,000 cash to close and begin rehab

Now, his investment was effectively worthless without starting from scratch.

What John P. Should Have Done: Due Diligence Steps

John’s costly lesson highlights why independent due diligence is non-negotiable in real estate. Here are the steps that should have been taken before closing:

1. Get a Professional Property Valuation

A licensed real estate broker should have provided a fair market value (as-is and ARV) instead of relying on the seller’s numbers.

2. Verify Rehab Costs with Contractors

A licensed general contractor walk-through would have revealed foundation concerns.
Specialists (engineers or foundation experts) could have provided accurate repair costs.

3. Order a Fresh Property Survey

Never trust prior surveys. A new survey would have revealed encroachments, preventing the deal from closing until corrected.

4. Secure Title Insurance

Title insurance would have flagged the encroachments and unpermitted construction, protecting John from a bad closing.

5. Check City Records for Code Violations

A quick check with the building department would have uncovered missing permits and open violations.

6. Don’t Skip the Timeline for Due Diligence

If a seller pushes for a fast close, it’s a red flag. Investors should walk away if not given proper time for inspections and research.

The Takeaway for Real Estate Investors

Due diligence in real estate isn’t optional—it’s your first line of defense against financial disaster. Whether you are buying your first flip or managing a large investment portfolio, always:

Work with licensed professionals.
Verify everything independently.
Obtain title insurance.
Conduct surveys and inspections.
Resist rushed timelines.

At Real Estate Kingz LLC, we specialize in guiding investors, buyers, and sellers through complex transactions, ensuring that hidden risks are uncovered before closing.

Don’t let someone else’s mistakes become your reality—contact Real Estate Kingz today for expert due diligence support in Florida real estate.