Doing your homework could save you a lot of money!
I’ll begin today’s article by guessing that you’d ultimately like for all of your investments to “work out” and make a profit for your portfolio. I think I’m safe in making that assumption. We’ve all heard the horror stories about Bernie Madoff’s Ponzi schemes and such, but these are entirely avoidable if you do a little homework before putting money down on an investment and keep a watchful eye on the numbers.
Find out the source of your potential investments: what credentials does the individual or organization have that prove their credibility? Is what they’re promising too good to be true? Do their legal documents line up?
As an account administrator, American IRA does not perform nor is it responsible for due diligence, but we do provide general information to help you understand the process and work with your professionals. Our goal is to help you know the questions to ask so we can make the process easier for you.
To illustrate my point about due diligence, I’ll use a real estate acquisition example. First, the basics:
- Cash Flow
- Property Values
- Homeowner’ Association Rules and Fees
Continuing down the list, you’ll need:
- Property liability insurance
- Title insurance
- Knowledge of the property’s condition
- Knowledge of the local market’s rental values
- Verification of the seller’s numbers
- Decisive decision making: don’t’ take too long to make decisions – good deals do not last
- Verification of all appraisals
- A realistic view of the numbers: don’t fudge the numbers, always overestimate costs and always underestimate potential profits
So, what are the take-home points here?
- Do good deals
- Fulfill your agreements
- Use professionals
- Stay on top of the numbers
- Respect the basics
- Don’t cut corners
This due diligence example is just one of many, many investment possibilities. The important thing is to do your homework. It’s as simple as that.