Real Insight. Real Estate.

Posts Tagged ‘due diligence’

Editor’s Note: With Valentine’s Day coming up this weekend (order your flowers ASAP!), we figured, why not start off the week with a Cupid-esque topic? We can’t wait to hear your feedback on this one….

When a joint venture partnership occurs in real estate, the term “getting into bed” is often tossed around. And despite the fact that real estate is an industry dominated by men (and therefore subject to more coarse, perverted analogies), this phrase is somewhat appropriate. When you sleep with someone, you want to make sure you are protected (from exactly what, I will leave to the reader’s imagination), right?  Well the same goes for your equity partner in a real estate transaction.  Yet, while all real estate transaction involve some form of due diligence, JV equity partnerships involve an entirely different level of due diligence.

Rather than scoping out the salient facts of the deal, examining the borrowers track record, and crossing all the “t’s” and dotting all the “i’s” of a particular transaction (like a bank might do), an equity partner has to get extremely comfortable with the sponsor’s style and personality in addition to the aforementioned due diligence.  For this reason vetting a JV equity partner has become a lot more like eHarmony than a one night stand. Read the rest of this entry »

If you enjoyed this post, make sure you subscribe to my RSS feed!

In Wednesday’s New York Times, this article spoke of a fraudulent scheme orchestrated by a mortgage broker to defraud banks.  The long and short of the story is that the culprits are alleged to have bought homes from struggling sellers, artificially inflated the prices of the homes, underwrote mortgages that buyers couldn’t afford, and then pocketed checks from banks, leaving the new buyers high and dry.  After reading this story, you might have similar questions to those that I had, such as:

1. How do you “artificially” inflate the values of homes? Isn’t there something called comparable sales?

2. If buyers with good credit couldn’t afford the mortgages, why did they apply for them? Why did they believe they could “get out of the deal” if it wasn’t documented somewhere as to how? (stupid questions)

3. While banks may not have done the appropriate due diligence on these homes, knowing that they would not be servicing them, why wouldn’t the buyers have, knowing they’d be responsible for the payments?

and the list goes on and on…until I remembered one thing.  Read the rest of this entry »

If you enjoyed this post, make sure you subscribe to my RSS feed!