Checklist Checklist

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  • #34 BUSINESS LINES OF CREDIT Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    Legal Information Notice: This checklist provides general educational information only. It is not legal advice, does not create an attorney-client relationship, and may not apply to your jurisdiction or circumstances. Laws and deadlines vary. Do not rely on this checklist for a specific legal decision or deadline; consult a qualified attorney licensed in the relevant jurisdiction. Do not submit confidential, privileged, or highly sensitive information through this page unless specifically instructed to do so.

    1. A line of credit is not free cash.
    2. Available credit can disappear if the lender changes terms.
    3. Variable rates can increase payments.
    4. Interest may accrue on outstanding balances.
    5. Annual renewal requirements can create risk.
    6. Borrowing capacity can depend on financial performance.
    7. Personal guarantees may apply.
    8. Collateral may be required.
    9. Covenants can restrict business decisions.
    10. Lenders may require financial reporting.
    11. Fees can include unused-line or annual charges.
    12. Late payments can trigger penalties.
    13. Default can accelerate repayment.
    14. A line used for permanent expenses can become a permanent debt problem.
    15. Borrowing to cover recurring operating losses is a warning sign.
    16. Seasonal businesses may need more capacity than the line provides.
    17. Customer concentration can suddenly reduce borrowing capacity.
    18. Receivables may not all qualify for borrowing.
    19. Inventory may have limited borrowing value.
    20. The stated credit limit may not equal practical availability.
    21. Drawing the full line can leave no emergency capacity.
    22. Refinancing risk exists if the facility is not renewed.
    23. Interest expense can quietly erode margins.
    24. A line should support a clear working-capital cycle.
    25. The critical question is “What specifically will this borrowed money accomplish?”

    B. PREMIUM BUYER CHECKLIST

    ☐ Credit limit
    ☐ Interest rate
    ☐ Fixed/variable
    ☐ Draw fees
    ☐ Annual fees
    ☐ Unused-line fees
    ☐ Renewal date
    ☐ Maturity
    ☐ Collateral
    ☐ Guarantee
    ☐ Covenants
    ☐ Reporting requirements

    PURPOSE

    ☐ Inventory
    ☐ Receivables
    ☐ Seasonal cash flow
    ☐ Short-term opportunity
    ☐ Emergency liquidity

    Avoid using a revolving facility to permanently fund operating losses.

    BORROWING-CAPACITY TEST

    ☐ Eligible receivables calculated
    ☐ Eligible inventory calculated
    ☐ Advance rates understood
    ☐ Concentration limits understood
    ☐ Borrowing-base formula understood

    LIQUIDITY TEST

    Model:

    ☐ Normal month
    ☐ Slow month
    ☐ Worst month
    ☐ Major customer delay
    ☐ Unexpected expense

    FINAL QUESTION

    If the lender froze the line tomorrow, how long could the business operate?

  • #33 BUSINESS ACQUISITION FINANCING Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    Legal Information Notice: This checklist provides general educational information only. It is not legal advice, does not create an attorney-client relationship, and may not apply to your jurisdiction or circumstances. Laws and deadlines vary. Do not rely on this checklist for a specific legal decision or deadline; consult a qualified attorney licensed in the relevant jurisdiction. Do not submit confidential, privileged, or highly sensitive information through this page unless specifically instructed to do so.

    1. You are financing a business—not merely buying its assets.
    2. Historical profits may not continue.
    3. Seller-adjusted earnings require verification.
    4. “Add-backs” can be overly optimistic.
    5. Customer concentration can create hidden risk.
    6. Key employees may leave after acquisition.
    7. The seller may be critical to operations.
    8. Customer relationships may not transfer.
    9. Contracts may not transfer.
    10. Licenses may not transfer.
    11. Lease terms may change.
    12. Hidden liabilities can survive the transaction depending on structure.
    13. Working-capital requirements can be underestimated.
    14. Inventory can be overstated.
    15. Accounts receivable may not be collectible.
    16. Equipment may require replacement.
    17. Deferred maintenance can become your problem.
    18. Tax liabilities must be investigated.
    19. Litigation must be investigated.
    20. Debt service can consume the cash flow you expected to receive.
    21. Seller financing terms can complicate the capital structure.
    22. Earnouts can create disputes.
    23. Overpaying can make even a good business a bad investment.
    24. A financing approval does not prove the acquisition is economically sound.
    25. The most dangerous assumption is “The business has always made this much money, so it will continue to do so.”

    B. PREMIUM BUYER CHECKLIST

    BUSINESS QUALITY

    ☐ Revenue history
    ☐ Gross margin
    ☐ EBITDA/SDE
    ☐ Cash flow
    ☐ Customer concentration
    ☐ Supplier concentration
    ☐ Recurring revenue
    ☐ Churn
    ☐ Competitive position

    FINANCIAL VERIFICATION

    ☐ Tax returns
    ☐ Bank statements
    ☐ Financial statements
    ☐ General ledger
    ☐ Accounts receivable
    ☐ Accounts payable
    ☐ Inventory
    ☐ Payroll
    ☐ Owner compensation
    ☐ Add-backs

    LEGAL

    ☐ Entity structure
    ☐ Contracts
    ☐ Leases
    ☐ Licenses
    ☐ Litigation
    ☐ Regulatory obligations
    ☐ Intellectual property
    ☐ Employee agreements

    FINANCING

    ☐ Purchase price
    ☐ Buyer equity
    ☐ Senior debt
    ☐ Seller financing
    ☐ Earnout
    ☐ Interest
    ☐ Amortization
    ☐ Guarantees
    ☐ Covenants
    ☐ Working-capital requirement

    TRANSITION

    ☐ Seller transition period
    ☐ Employee retention
    ☐ Customer retention
    ☐ Supplier continuity
    ☐ Systems transfer
    ☐ Password/data transfer
    ☐ Insurance transfer
    ☐ Licenses

    FINAL TEST

    Calculate the acquisition using:

    ☐ Seller’s projections
    ☐ Your conservative projections
    ☐ 20% lower revenue
    ☐ Higher expenses
    ☐ Loss of largest customer
    ☐ Seller departure

    FINAL QUESTION

    Would I still buy this business if revenue fell 20% immediately after closing?

  • #32 SBA LOANS Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    Legal Information Notice: This checklist provides general educational information only. It is not legal advice, does not create an attorney-client relationship, and may not apply to your jurisdiction or circumstances. Laws and deadlines vary. Do not rely on this checklist for a specific legal decision or deadline; consult a qualified attorney licensed in the relevant jurisdiction. Do not submit confidential, privileged, or highly sensitive information through this page unless specifically instructed to do so.

    1. “SBA-backed” does not mean the government is simply giving you the money.
    2. You work directly with a lender for an SBA loan.
    3. The lender still evaluates your business and repayment ability.
    4. Eligibility requirements matter.
    5. Loan proceeds may have permitted-use restrictions.
    6. Repayment comes from the business and/or other sources according to the loan structure.
    7. Variable-rate loans can produce changing payments.
    8. Fees can materially affect total borrowing cost.
    9. Collateral requirements may apply depending on the loan.
    10. Personal guarantees may create personal exposure.
    11. Business projections are not guaranteed results.
    12. Acquisition financing requires careful valuation.
    13. Buying a business at an inflated price can create a debt problem.
    14. Working-capital estimates can be wrong.
    15. Seasonal businesses may require more liquidity than expected.
    16. Existing debt can reduce borrowing capacity.
    17. Seller financing can change the transaction economics.
    18. Lease obligations matter.
    19. Tax obligations matter.
    20. The business must generate enough cash flow to service debt.
    21. A loan can solve a capital problem while creating a cash-flow problem.
    22. Refinancing should not be assumed.
    23. Default consequences must be understood before signing.
    24. Loan documents—not sales presentations—control the obligation.
    25. “SBA loan” is not a substitute for underwriting the business itself.

    The SBA states that most 7(a) term loans are repaid through monthly principal and interest payments from business cash flow, with variable-rate payments potentially changing when the rate changes.

    B. PREMIUM BUYER CHECKLIST

    BUSINESS

    ☐ Legal entity
    ☐ Ownership
    ☐ Years operating
    ☐ Revenue history
    ☐ Profitability
    ☐ Existing debt
    ☐ Tax obligations
    ☐ Customer concentration
    ☐ Supplier concentration

    PURPOSE

    ☐ Acquisition
    ☐ Working capital
    ☐ Equipment
    ☐ Real estate
    ☐ Expansion
    ☐ Refinancing
    ☐ Other permitted purpose

    LOAN

    ☐ Amount
    ☐ Rate
    ☐ Fixed/variable
    ☐ Term
    ☐ Payment
    ☐ Fees
    ☐ Collateral
    ☐ Guarantees
    ☐ Covenants
    ☐ Default provisions

    CASH-FLOW TEST

    ☐ Current cash flow calculated
    ☐ Debt service calculated
    ☐ Existing obligations included
    ☐ Owner compensation included
    ☐ Taxes included
    ☐ Working-capital needs included
    ☐ Downside case calculated

    IF BUYING A BUSINESS

    ☐ Tax returns reviewed
    ☐ Financial statements reviewed
    ☐ Bank statements reviewed
    ☐ Customer concentration
    ☐ Owner add-backs verified
    ☐ Seller claims independently tested
    ☐ Assets verified
    ☐ Liabilities verified
    ☐ Contracts reviewed
    ☐ Litigation reviewed

    FINAL QUESTION

    If the business produces substantially less cash flow than the seller’s projections, can the debt still be serviced?

  • #31 EQUIPMENT FINANCING Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    Legal Information Notice: This checklist provides general educational information only. It is not legal advice, does not create an attorney-client relationship, and may not apply to your jurisdiction or circumstances. Laws and deadlines vary. Do not rely on this checklist for a specific legal decision or deadline; consult a qualified attorney licensed in the relevant jurisdiction. Do not submit confidential, privileged, or highly sensitive information through this page unless specifically instructed to do so.

    1. The monthly payment can hide the total financing cost.
    2. A low rate does not necessarily mean a low-cost loan.
    3. Equipment can depreciate faster than the debt declines.
    4. Used equipment may have uncertain residual value.
    5. The lender may require a down payment.
    6. Fees can substantially increase acquisition cost.
    7. Documentation fees should be identified.
    8. Origination fees should be identified.
    9. Personal guarantees may be required.
    10. Collateral requirements may extend beyond the equipment.
    11. Cross-collateralization can increase exposure.
    12. Balloon payments can create refinancing risk.
    13. Variable rates can change payments.
    14. Prepayment penalties can limit flexibility.
    15. Equipment may become obsolete.
    16. Maintenance costs are part of the economic decision.
    17. Downtime can destroy the expected return.
    18. Manufacturer warranties may not cover everything.
    19. Vendor financing should be compared with independent financing.
    20. Leasing and purchasing produce different economics.
    21. Tax treatment can materially affect the effective cost.
    22. Insurance requirements add to ownership cost.
    23. Delivery delays can leave you paying before generating revenue.
    24. Financing equipment that doesn’t generate sufficient cash flow creates a debt problem.
    25. The right question is “What will this equipment actually earn me?”, not “What is the monthly payment?”

    B. PREMIUM BUYER CHECKLIST

    EQUIPMENT

    ☐ Exact equipment identified
    ☐ New/used condition documented
    ☐ Serial number recorded
    ☐ Age verified
    ☐ Hours/usage verified
    ☐ Maintenance history obtained
    ☐ Warranty reviewed
    ☐ Inspection completed

    ECONOMIC VALUE

    ☐ Purchase price
    ☐ Installation
    ☐ Delivery
    ☐ Training
    ☐ Maintenance
    ☐ Insurance
    ☐ Financing
    ☐ Expected useful life
    ☐ Expected resale value

    FINANCING

    ☐ Interest rate
    ☐ APR/effective cost where applicable
    ☐ Term
    ☐ Down payment
    ☐ Origination fees
    ☐ Documentation fees
    ☐ Prepayment terms
    ☐ Balloon payment
    ☐ Variable-rate provisions
    ☐ Personal guarantee

    CASH-FLOW TEST

    Estimate:

    Additional Revenue

    Cost Savings

    −

    Financing

    −

    Maintenance

    −

    Insurance

    −

    Downtime

    =

    Net Economic Benefit

    Then test the result at:

    ☐ 10% lower revenue
    ☐ 20% lower revenue
    ☐ 20% higher maintenance
    ☐ 3-month delayed implementation

    FINAL QUESTION

    If this equipment produces 30% less economic benefit than expected, can the business still comfortably make the payments?

  • #30 WEALTH MANAGEMENT Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    Legal Information Notice: This checklist provides general educational information only. It is not legal advice, does not create an attorney-client relationship, and may not apply to your jurisdiction or circumstances. Laws and deadlines vary. Do not rely on this checklist for a specific legal decision or deadline; consult a qualified attorney licensed in the relevant jurisdiction. Do not submit confidential, privileged, or highly sensitive information through this page unless specifically instructed to do so.

    1. “Wealth management” can mean very different things from one firm to another.
    2. Fees can exist at multiple levels.
    3. Asset-management fees are not necessarily the only fees.
    4. Advisory fees may be percentage-based.
    5. Product commissions may create conflicts.
    6. Certain products can carry embedded expenses.
    7. Portfolio performance should be evaluated net of all relevant costs.
    8. A high-performing portfolio may simply have taken more risk.
    9. Benchmark selection matters.
    10. Risk tolerance should not be confused with risk capacity.
    11. Liquidity needs matter.
    12. Concentration can quietly build over time.
    13. Tax consequences matter.
    14. Retirement objectives matter.
    15. Estate planning may require coordination with other professionals.
    16. Insurance may be recommended for legitimate reasons—but costs and incentives should be understood.
    17. Alternative investments can introduce illiquidity and complexity.
    18. Proprietary products deserve extra scrutiny.
    19. Conflicts of interest should be disclosed and understood.
    20. “Personalized” does not necessarily mean comprehensive.
    21. A famous firm does not automatically mean a suitable adviser.
    22. Past investment performance does not guarantee future performance.
    23. Changing advisers can create transaction and tax consequences.
    24. You should know exactly who has custody of your assets.
    25. The most important question may be “How are you compensated?”

    B. PREMIUM BUYER CHECKLIST

    ADVISER

    ☐ Adviser identity verified
    ☐ Firm identity verified
    ☐ Qualifications reviewed
    ☐ Relevant registration/licensing checked for your jurisdiction
    ☐ Disciplinary/background information reviewed where applicable
    ☐ Experience with similar clients confirmed

    SERVICES

    ☐ Investment management
    ☐ Retirement planning
    ☐ Tax coordination
    ☐ Estate-planning coordination
    ☐ Insurance planning
    ☐ Cash-flow planning
    ☐ Business/exit planning
    ☐ Risk management

    Clearly distinguish what the adviser actually provides from what is merely available through partners or referrals.

    COMPENSATION

    ☐ Advisory fee
    ☐ Asset-management fee
    ☐ Product commissions
    ☐ Transaction costs
    ☐ Fund expenses
    ☐ Custody fees
    ☐ Planning fees
    ☐ Performance-based fees, if any
    ☐ Other administrative fees

    PORTFOLIO

    ☐ Investment philosophy documented
    ☐ Risk profile documented
    ☐ Benchmark identified
    ☐ Asset allocation explained
    ☐ Concentration reviewed
    ☐ Liquidity needs incorporated
    ☐ Tax implications considered
    ☐ Alternative investments explained

    CONFLICTS

    Ask:

    ☐ Do you receive commissions?
    ☐ Do you receive compensation from third parties?
    ☐ Do you recommend proprietary products?
    ☐ Do you have minimum account requirements?
    ☐ Are there products you cannot recommend?
    ☐ Who is the custodian?
    ☐ How are referrals compensated?

    REPORTING

    ☐ Statements explained
    ☐ Performance reporting understood
    ☐ Fees visible
    ☐ Account access verified
    ☐ Custody arrangements understood
    ☐ Complaint/escalation procedure known

    FINAL COST TEST

    Calculate:

    Advisory Fees + Product Fees + Fund Expenses + Transaction Costs + Other Charges

    Then compare that total against the expected benefit of the service.

    FINAL QUESTION

    If I could see every dollar this relationship generates for everyone involved, would I still choose it?

  • #29 VENTURE CAPITAL Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    Legal Information Notice: This checklist provides general educational information only. It is not legal advice, does not create an attorney-client relationship, and may not apply to your jurisdiction or circumstances. Laws and deadlines vary. Do not rely on this checklist for a specific legal decision or deadline; consult a qualified attorney licensed in the relevant jurisdiction. Do not submit confidential, privileged, or highly sensitive information through this page unless specifically instructed to do so.

    1. Venture investing can involve extreme loss risk.
    2. A promising startup can still fail.
    3. A great product does not guarantee a great investment.
    4. Revenue growth may depend heavily on future capital.
    5. Future fundraising may not happen.
    6. Dilution can materially reduce ownership.
    7. Preferred shares may have rights ordinary shares do not.
    8. Liquidation preferences matter.
    9. Anti-dilution provisions matter.
    10. Convertible instruments can have complicated economics.
    11. Valuation isn’t the same thing as intrinsic value.
    12. High valuation creates a higher performance hurdle.
    13. Founder risk matters.
    14. Key-person dependency matters.
    15. Customer concentration can be dangerous.
    16. Burn rate can change rapidly.
    17. Runway can disappear faster than expected.
    18. Competitive threats can emerge suddenly.
    19. Regulatory changes can destroy a business model.
    20. Exit assumptions may be unrealistic.
    21. IPOs are rare and uncertain.
    22. Acquisition isn’t guaranteed.
    23. Secondary liquidity may not exist.
    24. Investors can lose 100% of their capital.
    25. The question is not merely “How big could this company become?” but “What must go right for my investment to work?”

    B. PREMIUM BUYER CHECKLIST

    COMPANY

    ☐ Legal entity verified
    ☐ Founders identified
    ☐ Ownership structure reviewed
    ☐ Product/service understood
    ☐ Market defined
    ☐ Competitive landscape reviewed

    FINANCIALS

    ☐ Revenue verified
    ☐ Revenue quality examined
    ☐ Gross margins
    ☐ Burn rate
    ☐ Cash balance
    ☐ Runway
    ☐ Customer concentration
    ☐ Debt
    ☐ Outstanding obligations

    CAP TABLE

    ☐ Current ownership
    ☐ Preferred/common structure
    ☐ Option pool
    ☐ Convertible securities
    ☐ Warrants
    ☐ Existing investor rights
    ☐ Expected dilution

    INVESTMENT TERMS

    ☐ Valuation
    ☐ Security type
    ☐ Liquidation preference
    ☐ Conversion rights
    ☐ Voting rights
    ☐ Anti-dilution
    ☐ Information rights
    ☐ Pro-rata rights

    FUNDING RISK

    ☐ Current runway
    ☐ Next funding requirement
    ☐ Likely funding environment
    ☐ Down-round scenario
    ☐ No-next-round scenario

    EXIT

    ☐ Realistic acquisition candidates
    ☐ Comparable exits
    ☐ IPO assumptions challenged
    ☐ Time-to-exit considered
    ☐ No-exit scenario modeled

    FINAL QUESTION

    If the company never raises another dollar, what happens to my investment?

  • #28 PRIVATE EQUITY Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    Legal Information Notice: This checklist provides general educational information only. It is not legal advice, does not create an attorney-client relationship, and may not apply to your jurisdiction or circumstances. Laws and deadlines vary. Do not rely on this checklist for a specific legal decision or deadline; consult a qualified attorney licensed in the relevant jurisdiction. Do not submit confidential, privileged, or highly sensitive information through this page unless specifically instructed to do so.

    1. Private equity is not the same as buying a publicly traded stock.
    2. Your capital may be locked up for years.
    3. The advertised return is not necessarily your net return.
    4. Management fees reduce returns.
    5. Performance fees/carry can materially affect economics.
    6. Fund expenses can be complex.
    7. Valuations may not be continuously observable.
    8. The manager’s track record requires verification.
    9. Past fund performance does not guarantee future performance.
    10. Deal-level success does not guarantee fund-level success.
    11. Concentration risk can be substantial.
    12. Leverage can magnify losses.
    13. Portfolio-company debt matters.
    14. Exit assumptions can determine reported returns.
    15. A fund may require additional capital contributions depending on structure.
    16. Capital calls can create liquidity problems.
    17. Conflicts of interest can exist.
    18. Related-party transactions require scrutiny.
    19. Fee structures can be difficult to understand.
    20. Distribution timing can be unpredictable.
    21. Tax consequences can be complicated.
    22. The legal structure controls your rights.
    23. You may have limited control over investment decisions.
    24. Secondary liquidity may be limited.
    25. The first question should be “What exactly am I buying?”, not “What return are you promising?”

    B. PREMIUM BUYER CHECKLIST

    FUND/DEAL IDENTITY

    ☐ Fund/entity identified
    ☐ Manager identified
    ☐ Strategy documented
    ☐ Target investment period
    ☐ Target holding period
    ☐ Geographic focus
    ☐ Sector focus
    ☐ Investment concentration limits

    MANAGER DUE DILIGENCE

    ☐ Track record independently verified
    ☐ Prior funds reviewed
    ☐ Failed investments examined
    ☐ Team backgrounds verified
    ☐ Regulatory/background information reviewed where appropriate
    ☐ References obtained

    ECONOMICS

    ☐ Management fee
    ☐ Performance fee/carry
    ☐ Fund expenses
    ☐ Transaction fees
    ☐ Administrative fees
    ☐ Capital-call mechanics
    ☐ Distribution mechanics
    ☐ Net-return calculation

    LEGAL RIGHTS

    ☐ Offering documents reviewed
    ☐ Partnership/agreement documents reviewed
    ☐ Redemption/transfer restrictions
    ☐ Voting rights
    ☐ Reporting rights
    ☐ Key-person provisions
    ☐ Conflict provisions
    ☐ Removal provisions
    ☐ Default provisions

    RISK

    ☐ Leverage
    ☐ Concentration
    ☐ Illiquidity
    ☐ Valuation risk
    ☐ Exit risk
    ☐ Manager risk
    ☐ Economic-cycle risk

    FINAL TEST

    Can I explain exactly how my money can be lost, locked up, diluted, or reduced by fees?

    If not, stop.

  • #27 REAL ESTATE INVESTMENT Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    Legal Information Notice: This checklist provides general educational information only. It is not legal advice, does not create an attorney-client relationship, and may not apply to your jurisdiction or circumstances. Laws and deadlines vary. Do not rely on this checklist for a specific legal decision or deadline; consult a qualified attorney licensed in the relevant jurisdiction. Do not submit confidential, privileged, or highly sensitive information through this page unless specifically instructed to do so.

    1. “Real estate always goes up” is not an investment strategy.
    2. Leverage magnifies both gains and losses.
    3. Cash flow projections can be manipulated by assumptions.
    4. Appreciation is uncertain.
    5. Location quality is more complicated than a popular neighborhood.
    6. Population growth does not automatically mean investment success.
    7. Rental demand can change.
    8. New supply can reduce rents.
    9. Property taxes can increase.
    10. Insurance can become unexpectedly expensive.
    11. Maintenance is unavoidable.
    12. Major capital expenditures can arrive together.
    13. Vacancy can destroy thin margins.
    14. Property management can be harder than expected.
    15. Tenant problems can consume time and money.
    16. Transaction costs reduce returns.
    17. Selling isn’t free.
    18. Refinancing isn’t guaranteed.
    19. Interest rates can change.
    20. “Passive income” may require substantial management.
    21. Partnerships create additional risks.
    22. Syndications require serious due diligence.
    23. Promised returns are not guaranteed returns.
    24. Tax treatment can materially affect results.
    25. Your investment thesis should survive a bad year—not just a spreadsheet showing a great year.

    B. PREMIUM BUYER CHECKLIST

    DEFINE THE STRATEGY

    ☐ Rental
    ☐ Fix-and-flip
    ☐ Development
    ☐ Land
    ☐ Commercial
    ☐ Short-term rental
    ☐ Syndication
    ☐ REIT/public exposure
    ☐ Other

    UNDERWRITE THE ASSET

    ☐ Purchase price
    ☐ Comparable properties
    ☐ Current income
    ☐ Market income
    ☐ Vacancy
    ☐ Operating expenses
    ☐ Capital expenditures
    ☐ Taxes
    ☐ Insurance
    ☐ Management

    UNDERWRITE THE MARKET

    ☐ Population
    ☐ Employment
    ☐ New construction
    ☐ Rental supply
    ☐ Rental demand
    ☐ Major employers
    ☐ Infrastructure
    ☐ Regulatory environment

    UNDERWRITE THE FINANCING

    ☐ Loan-to-value
    ☐ Interest rate
    ☐ Term
    ☐ Amortization
    ☐ Refinancing assumptions
    ☐ Fees
    ☐ Guarantees
    ☐ Prepayment
    ☐ Default consequences

    UNDERWRITE THE DOWNSIDE

    ☐ 10% lower income
    ☐ 20% vacancy
    ☐ Major repair
    ☐ Higher insurance
    ☐ Higher taxes
    ☐ Higher interest rate
    ☐ Lower property value
    ☐ Six-month vacancy
    ☐ Delayed sale

    FINAL TEST

    If the investment cannot survive reasonable downside assumptions, it is speculation disguised as an investment.

  • #26 INVESTMENT PROPERTY LOANS Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    Legal Information Notice: This checklist provides general educational information only. It is not legal advice, does not create an attorney-client relationship, and may not apply to your jurisdiction or circumstances. Laws and deadlines vary. Do not rely on this checklist for a specific legal decision or deadline; consult a qualified attorney licensed in the relevant jurisdiction. Do not submit confidential, privileged, or highly sensitive information through this page unless specifically instructed to do so.

    The property must support the debt—not merely look attractive.
    2. Appreciation should not be your only repayment strategy.
    3. Rental income projections can be overly optimistic.
    4. Vacancy reduces actual cash flow.
    5. Repairs can consume expected profit.
    6. Property taxes can rise.
    7. Insurance can rise dramatically.
    8. Financing terms can change your entire return.
    9. Interest-only payments can hide the eventual principal problem.
    10. Balloon maturities create refinancing risk.
    11. Debt-service calculations depend on assumptions.
    12. Lenders may use their own income calculations.
    13. Appraised value isn’t necessarily market sale value.
    14. A high projected ROI may depend on leverage.
    15. Leverage magnifies losses as well as gains.
    16. Property management costs are frequently underestimated.
    17. Maintenance reserves matter.
    18. Capital expenditures are different from routine repairs.
    19. Tenant turnover creates real costs.
    20. Bad tenants can create legal and financial exposure.
    21. A property can have positive rent but negative cash flow.
    22. Refinancing may become harder when rates rise.
    23. Selling costs can erase apparent equity gains.
    24. Tax considerations can materially change the economics.
    25. A property that “pays for itself” on paper may not do so in reality.

    B. PREMIUM BUYER CHECKLIST

    PROPERTY

    ☐ Purchase price
    ☐ Independent valuation
    ☐ Property condition
    ☐ Age of major systems
    ☐ Roof
    ☐ HVAC
    ☐ Plumbing
    ☐ Electrical
    ☐ Structural condition
    ☐ Environmental issues

    INCOME

    ☐ Current rent roll
    ☐ Actual collections
    ☐ Vacancy
    ☐ Delinquencies
    ☐ Lease terms
    ☐ Tenant concentration
    ☐ Market rents independently checked

    EXPENSES

    ☐ Property taxes
    ☐ Insurance
    ☐ Management
    ☐ Repairs
    ☐ Maintenance
    ☐ Utilities
    ☐ HOA/association fees
    ☐ Capital expenditures
    ☐ Legal/accounting
    ☐ Advertising/leasing

    FINANCING

    ☐ Rate
    ☐ Term
    ☐ Amortization
    ☐ Interest-only period
    ☐ Balloon
    ☐ Fees
    ☐ Prepayment
    ☐ DSCR requirements
    ☐ Reserves
    ☐ Guarantees

    RETURN ANALYSIS

    Calculate:

    Gross Income

    minus

    Vacancy + Operating Expenses + Debt Service + Capital Reserves

    =

    Actual Cash Flow

    Then test:

    ☐ 10% vacancy
    ☐ 20% vacancy
    ☐ 10% lower rent
    ☐ 15% higher expenses
    ☐ Major repair
    ☐ Higher refinancing rate
    ☐ 10% lower property value

    FINAL DECISION

    Do not rely on appreciation to rescue weak operating economics.

    FINAL QUESTION:

    “Would I still want this property if its value stayed exactly the same for ten years?”

  • #25 LAND LOANS Buyer Checklist You Need To Know Before You Spend Your Money. 70 Buyer-Beware Intelligence Points.

    Legal Information Notice: This checklist provides general educational information only. It is not legal advice, does not create an attorney-client relationship, and may not apply to your jurisdiction or circumstances. Laws and deadlines vary. Do not rely on this checklist for a specific legal decision or deadline; consult a qualified attorney licensed in the relevant jurisdiction. Do not submit confidential, privileged, or highly sensitive information through this page unless specifically instructed to do so.

    1. Raw land may produce no income while you own it.
    2. The purchase price does not prove the land’s true value.
    3. Financing may require substantial equity.
    4. Land loans can have shorter terms than conventional mortgages.
    5. Interest costs can accumulate while the land produces nothing.
    6. Zoning can limit what you can actually build.
    7. “Potential development” is not the same as approved development.
    8. Entitlements can take longer than expected.
    9. Rezoning is never something to casually assume.
    10. Access can be a major problem.
    11. Easements can restrict development.
    12. Utility availability must be verified.
    13. Water/sewer assumptions can be wrong.
    14. Environmental problems can destroy feasibility.
    15. Flood/drainage issues can increase development costs.
    16. Soil conditions can dramatically affect construction.
    17. Survey problems can change usable acreage.
    18. Property taxes continue while you wait.
    19. Insurance and maintenance costs may continue without income.
    20. A future construction loan may never materialize.
    21. A future buyer may not value the property as you expect.
    22. Market conditions can change during the entitlement period.
    23. Personal guarantees may expose other assets.
    24. Default can result in losing the land and invested equity.
    25. The critical question is whether the land works today, not merely what it might become someday.

    Land loans can be particularly risky because undeveloped land generally lacks operating cash flow and repayment may depend on development, sale or another financing event.

    B. PREMIUM BUYER CHECKLIST

    MISSION

    Determine whether the land is financially viable before relying on future development potential.

    PROPERTY

    ☐ Parcel identified
    ☐ Legal description verified
    ☐ Survey obtained
    ☐ Title reviewed
    ☐ Liens identified
    ☐ Easements identified
    ☐ Access verified
    ☐ Boundaries confirmed

    DEVELOPMENT POTENTIAL

    ☐ Zoning verified
    ☐ Permitted use confirmed
    ☐ Density confirmed
    ☐ Setbacks confirmed
    ☐ Development restrictions identified
    ☐ Entitlement status documented
    ☐ Permit requirements identified

    INFRASTRUCTURE

    ☐ Road access
    ☐ Electricity
    ☐ Water
    ☐ Sewer/septic feasibility
    ☐ Drainage
    ☐ Telecommunications
    ☐ Utility connection costs

    PHYSICAL DUE DILIGENCE

    ☐ Environmental issues investigated
    ☐ Flood risk investigated
    ☐ Soil/geotechnical conditions investigated
    ☐ Topography reviewed
    ☐ Wetlands/environmental restrictions considered where applicable

    FINANCING

    ☐ Loan amount
    ☐ Interest rate
    ☐ Fees
    ☐ Term
    ☐ Amortization/payment structure
    ☐ Balloon/maturity obligation
    ☐ Extension options
    ☐ Prepayment provisions
    ☐ Default provisions
    ☐ Guarantees

    CARRYING COST

    Calculate:

    Interest + Taxes + Insurance + Maintenance + Professional Fees + Development Costs

    Then calculate the total cost for:

    ☐ 12 months
    ☐ 24 months
    ☐ 36 months
    ☐ 48 months

    EXIT TEST

    ☐ Sale value tested
    ☐ Development value tested
    ☐ Construction financing availability investigated
    ☐ Alternative exit identified

    FINAL QUESTION

    If I cannot develop this property for three years, can I comfortably afford to own it?