You've found a deal. You've negotiated terms. The LOI is signed and you're under contract. Now starts the most important phase of any acquisition: due diligence — the structured process of verifying everything the seller told you, uncovering everything they didn't, and deciding whether the deal is still worth doing.

This course teaches the full DD playbook. This first lesson is the framework: what DD actually is, why it matters, and the timeline you operate in.

What due diligence actually means

Due diligence is the process of investigating a property before closing to confirm:

Everything the seller told you is true (rent roll, expenses, financials, leases)
Everything the seller didn't tell you (deferred maintenance, environmental issues, legal problems, tenant issues)
The property is actually what it appears to be (physical condition, zoning, utilities, access)
The numbers still work (re-underwriting with verified data)
You can get the financing you assumed (lender DD on the property)
Closing is actually possible (title is clean, ownership is clear, no legal blockers)

The goal is binary: either you get to closing with confidence that the deal is what you thought, or you walk with your earnest money intact. There are no other acceptable outcomes.

Why DD is where deals die

Most deals that don't close die in DD, not at LOI. The reasons are usually one of:

Numbers don't match — actual rent collection is below the rent roll, expenses are higher than the T-12, or some major income is one-time
Major capex discovered — roof/HVAC/structural issues that weren't disclosed
Environmental issues — Phase I flags historic contamination or other environmental risks
Title issues — easements, encroachments, missing documents, ownership disputes
Lease problems — leases that don't match the rent roll, expired tenants, problematic lease terms, co-tenancy clauses
Tenant credit issues — major tenant in financial trouble, recent payment problems
Zoning issues — current use is non-conforming, expansion limited, change of use restricted
Lender concerns — appraisal comes in low, property condition assessment flags issues, lender pulls term sheet

Any one of these can kill a deal. The point of DD is to find them BEFORE the day of closing, not after.

The five DD domains

DD breaks into five areas of investigation:

1. Legal DD

Title commitment review
Survey
Zoning verification
Permitted use confirmation
Easements, restrictions, covenants
Legal access (ingress/egress)
Pending litigation
Lease document review (LANDLORD'S obligations)

2. Physical DD

Property condition assessment (PCA)
Roof inspection
HVAC assessment
Structural review
Electrical and plumbing
Parking lot condition
ADA compliance
Pest / termite inspection (if applicable)

3. Environmental DD

Phase I Environmental Site Assessment (always)
Phase II if Phase I flags issues
Mold, asbestos, lead paint (older buildings)
Radon (in some markets)
Wetlands and flood zone

4. Financial DD

T-12 verification (compare to rent roll)
T-3 (most recent 3 months)
Bank statements / deposit records
Tax returns (if available)
CAM reconciliation
Operating expense audit
Tax bill verification
Insurance bills and quotes
Utility bills

5. Tenant DD

Lease abstract / lease summary
Lease document review (TENANT'S obligations and rights)
Estoppel certificates
Subordination, Non-Disturbance, and Attornment Agreements (SNDA)
Tenant credit checks (especially major tenants)
Tenant payment history
Co-tenancy clauses
Exclusive use clauses
Renewal/termination rights

Each domain has its own specialists: title companies for title, attorneys for legal, engineers for physical, environmental consultants for Phase I, accountants for financial, you for tenant. Coordinating these specialists is the project-management part of DD.

Typical DD timeline

A normal CRE acquisition has 30-60 days of DD between LOI and closing. The timeline structure is roughly:

Days 1-7: Setup and ordering

Sign PSA (purchase and sale agreement)
Order title commitment
Order Phase I ESA
Order survey (if not provided)
Order PCA / property inspection
Send seller information request list
Schedule property tours and inspections
Engage attorneys

Days 8-21: Active investigation

Review seller-provided documents (T-12, rent roll, leases, contracts)
Receive Phase I draft
Receive PCA draft
Receive title commitment with exceptions
Walk every unit / space (multifamily, office)
Interview property manager
Pull comp data, market data
Lender appraisal ordered

Days 22-35: Tenant and verification work

Send estoppel certificates to tenants
Receive estoppels back
Verify rent payments against bank records
Verify expenses against vendor invoices
Review all lease documents in detail
Get insurance quotes
Get accurate property tax assessment estimate
Resolve any title exceptions

Days 36-45: Re-underwriting and decision

Re-underwrite the deal with all verified numbers
Identify all material issues
Decide: close, renegotiate, or walk
Negotiate any price adjustment or seller credits
Confirm final loan terms with lender

Days 46-60: Closing prep

Final lender DD complete
Closing statement prepared
Funds wired
Documents signed
Recording

This is the "happy path." Real deals often need extensions if Phase I issues come up, if tenant estoppels are slow, or if title issues need resolving. Build in buffer.

Earnest money and DD periods

The PSA structure typically includes:

Initial earnest money deposit at PSA signing — refundable during DD period
DD period (30-45 days typically) where the buyer can walk for any reason and get earnest money back
End of DD period — earnest money becomes "hard" (non-refundable)
Closing — typically 15-30 days after DD ends

Some sellers want shorter DD periods (15-21 days). Some buyers want longer (60+ days). Negotiate based on the complexity of the deal: simple stabilized deals can close in 30 days, complex value-add or development deals need 60-90.

The "going hard" date is the critical decision moment. Before that date, you can walk freely. After, you lose your earnest money if you don't close. So all material DD must be DONE before the going-hard date.

A common mistake: rushing to go hard because you're excited about the deal, then discovering an issue afterward. The DD period exists for exactly this reason. Use it.

What "going hard" actually feels like

When you make earnest money non-refundable, you're committing real money to closing the deal. For a $4M deal, earnest money is typically 1-2% — so $40K-$80K. That's the amount you're risking if anything goes wrong post-DD.

Going hard should feel uncomfortable. If you're not nervous about it, you probably haven't fully grasped what could go wrong.

The discipline: only go hard when you've ACTUALLY completed every item on your DD checklist. Not 80%. Not "the important ones." All of them. Including the boring ones (utility bills, property tax verification, vendor contracts) that beginners skip.

Buyer's role vs. specialists' role

You don't do DD alone. You manage a team of specialists who do their parts:

| Specialist | Their role | Cost (typical) | |---|---|---| | Title company | Pull title, find exceptions | $500-$2000 | | Attorney | Review PSA, leases, title | $3K-$15K | | Phase I environmental consultant | Environmental site assessment | $1500-$4000 | | Property inspector / engineer | Physical condition assessment | $1500-$5000 | | Surveyor | ALTA survey | $2K-$8K | | Insurance broker | Get binding insurance quote | Free (commission-based) | | Lender appraiser | Property valuation | $3K-$8K |

Total third-party DD costs for a typical $4M deal: $15K-$40K. This is real money and it's spent regardless of whether the deal closes. If you walk on day 28, you eat the costs.

Your role:

Coordinate the specialists (chase them, review their reports, integrate findings)
Do the work specialists don't do (lease abstracts, financial verification, market underwriting)
Synthesize everything and make the final decision

DD is roughly 50% specialist work and 50% buyer work. The buyer who delegates everything to the specialists misses things; the buyer who tries to do everything alone burns out.

The DD checklist mindset

A good DD process is checklist-driven, not memory-driven. There are dozens of items to track and dozens of things that can go wrong. Without a written checklist, you WILL miss something.

The next lessons in this course will build out the full checklist by domain. For now, the principle: write down every item, mark each one as complete with a date and a note, and don't skip items because they "feel obvious." The obvious item is the one that surprises you.

A sample top-of-the-checklist:

DEAL: 24-unit MF, 1234 Oak St, Casselberry FL
PSA EXECUTED: 2026-04-01
DD ENDS: 2026-05-01 (30 days)
CLOSING: 2026-05-30

LEGAL DD
[ ] Title commitment ordered (date: ____)
[ ] Title commitment received (date: ____)
[ ] Title exceptions reviewed (date: ____)
[ ] Survey ordered (date: ____)
[ ] Survey reviewed (date: ____)
[ ] Zoning verified (date: ____)
[ ] Lease docs received (date: ____)
[ ] Lease docs reviewed (date: ____)

PHYSICAL DD
[ ] PCA ordered (date: ____)
[ ] PCA report received (date: ____)
[ ] Walk every unit (date: ____)
[ ] Roof inspected (date: ____)
[ ] HVAC inspected (date: ____)
...

This level of granularity feels like overkill until your first deal where missing item #43 costs you $50K. Then it feels like wisdom.

What "passing" DD looks like

A deal passes DD when:

All checklist items are complete
All material issues are identified
Material issues have been either:
- Cured by the seller
- Compensated by price reduction or seller credit
- Accepted by you as acceptable risks
The re-underwritten deal still hits your return thresholds
Your lender is committed
Your gut still says yes

Note that "no issues found" is rare. Most deals have some issues. The question is whether they're tolerable, fixable, or deal-killers.

Deals fail DD when:

Material issues can't be cured AND
Seller won't compensate AND
The re-underwritten deal doesn't hit your hurdles

In that case, you walk before going hard, get your earnest money back, and move on.

The honest emotional reality

DD is exhausting. You're managing 10+ people, reading hundreds of pages, chasing slow responses, finding problems you didn't expect, and making expensive decisions on incomplete information. Your emotions will swing — excitement when something checks out, anxiety when something doesn't.

Three pieces of advice:

Decisions get worse when you're tired. Don't make the going-hard decision late at night or when stressed. Sleep on it.
Optimism creep is the enemy. When you're in love with a deal, you'll rationalize away problems. Have someone else (partner, spouse, mentor) review the DD findings independently before you go hard.
Walking is OK. You will walk on some deals during DD. That's not failure — that's the system working. The failures are the deals you should have walked from but didn't.

What this course will cover

The next 6 lessons drill into each DD domain:

Legal DD (title, survey, zoning, contracts)
Physical DD (PCA, roof, HVAC, walking the property)
Environmental DD (Phase I, mold, asbestos, lead, radon)
Financial DD (T-12 audit, expense verification, tax/insurance reset)
Lease and tenant DD (estoppels, lease abstracts, credit checks)
The DD-to-closing handoff (what changes, when to go hard, what to demand)

Each lesson includes specific items, common pitfalls, and the discipline of how to actually execute. By the end, you should be able to run a complete DD on any deal with confidence.

What to take away

Due diligence is the structured process of verifying everything before closing
Five domains: legal, physical, environmental, financial, tenant
30-60 day timeline is normal; build buffer for complications
"Going hard" is the moment earnest money becomes non-refundable — don't go hard until checklist is 100% complete
DD is a team sport: title, attorney, environmental, engineer, lender — you coordinate
DD costs $15K-$40K on a typical deal; this is the price of admission
Use a written checklist; missed items kill deals
Most deals have some issues; the question is whether they're acceptable
Walking during DD is the system working, not failure

Next lesson: legal due diligence — title commitments, surveys, zoning, and the documents that make or break a closing.

The DD Framework — What Due Diligence Actually Is