10 Important Things to Do During the NNN Property due Diligence Period
Due Diligence is an important phase in the purchase of commercial triple net NNN property, where various aspects of the transaction are studied carefully and in depth by the investor or the investor’s legal, financial, accounting, and triple net property real estate experts(NNN Tenant verification, NNN lease agreement, trusted advisors). It is the 30 day time period after a contract is signed, and the buyer must make a decision – whether or not – to go forward with the transaction Consider the following steps, in no particular order:
- Hire a legal advisor, accountant and real estate broker: to assess, analyze and evaluate the many legal and financial implications of the transaction, beginning with the NNN lease agreement it term and various liability, damage and SNDA clauses.
- Examine the loan deed: with legal help, examine the details of the loan document to make sure it has no “time bombs” that are unknown.
- Physical inspection of the NNN property: tour and examine the investment property physically, to validate the condition of the property, keeping in mind tenant rights. Use a commercial property inspection company to accomplish this.
- NNN Tenant verification: validate the tenant’s details and operations to ensure that personal guarantees, credit ratings, earnings, profits, sales, and business conditions etc. are adequate to meet current and future cap rates on the property.
- Review Environmental reports: Phase 1 reports can inform the investor of hazardous material on property or lack thereof. Phase 2 reports, when used, go beyond Phase 1 reports, to certify “no further action required”, which can act as a “green light” to proceed further on the NNN property investment.
- Review Title: use a title company to run a search for clear title to validate the true owner of the property and the seller’s rights in the transaction. Also, check for exceptions and easements on title.
- Review the Alta Survey: this survey assures the absence of any kind of encroachment on the property and makes sure that the easements will benefit the investor.
- Review Tenant Insurance Certificates: this certificate must be checked to ensure that the investor’s name is included as “co-insured”.
- Review the Occupancy Certificate: this confirms that the property has not violated code and does not participate in any other future project with another entity.
- Examine all Documents related to purchase, physically: before closing the property, ask for the all documents and reports that will help manage the risk and returns from the NNN property.
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