Commercial Real Estate Due Diligence Checklist
Commercial real estate is not a passive investment. It is a job. The check at the end is the reward for doing the job correctly.
If your plan is to buy a building, collect rent, and disappear, that plan will eventually find a way to remind you it was never a plan. The investors who actually build wealth in CRE are the ones who respect how much work sits between the purchase contract and stabilized cash flow. The ones who skip that work do not get to skip the consequences.
Here is what a proper deal actually requires, start to finish, without the sales pitch version.
Property evaluation begins before you ever fall in love with a building. Zoning matters, including the obscure clauses. Comps matter. Exit scenarios, plural, matter, because the market you buy in is rarely the market you sell in. Brokers will tell you a property looks good. That is not an evaluation. That is a conversation starter.
Site inspections mean real inspections. Foundation, roof, HVAC load, plumbing scoped with a camera, infrared moisture surveys on anything built before last decade. A visual walkthrough is how people end up owning $200,000 worth of problems they did not know they were buying. Defer this, and you are not saving money. You are borrowing trouble.
Environmental due diligence is non-negotiable. Phase I at minimum. Phase II if the history of the site gives you any reason to look closer. If the property was ever a dry cleaner, a gas station, or anything described as a "mystery warehouse," pull the historical records. The liability you inherit when you skip this step does not disappear because you did not look for it.
Title work, surveys, and easement review are where ownership gets complicated fast. An easement from 1973 can give someone the legal right to drive across your property, dig under it, or park on it indefinitely. Get a current ALTA survey. Have a competent attorney read what it says. Schedule B items on the title commitment exist for a reason. Read them.
Permitting and code research kills timelines when ignored up front. Pre-development meetings with the city, architectural plan review before closing, verification of allowable uses and parking ratios, these are not bureaucratic suggestions. Grandfather clauses expire. Assumptions about permit timelines are almost always wrong.
Mechanical and structural review is where budgets collapse. MEP, mechanical, electrical, plumbing, is invisible until it is not, and when it becomes visible it is expensive. Hire a licensed engineer or a former GC, meaning someone who has actually been paid to fix this stuff rather than just assess it.
Financial forensics means auditing what the seller hands you, not just collecting it. Rent rolls get padded. Leases get fabricated. Deferred maintenance gets buried in creative bookkeeping. T12s, utility bills, maintenance logs, look at all of it with the assumption that someone may have cleaned it up before you arrived.
Insurance in Texas is its own discipline. Wind and hail coverage, vacancy clauses, flood zone exposure, liability limits, get quotes early and price all of it into the deal before you are under contract, not after. When your agent says it is going to be expensive, that is not a warning. That is a preview.
Contingency is not optional. You will miss something. Every experienced investor has missed something. The ones who survive it are the ones who budgeted for the possibility. Build the contingency in, or at least have the honesty to acknowledge you will need one.
Finally, the team. CRE is not a solo exercise. You need brokers who actually know the market, attorneys who specialize in commercial transactions, CPAs with CRE experience, property managers with real bandwidth, and contractors you can verify independently. "My buddy's guy" is not a vetting process.
None of this is meant to scare you out of the asset class. CRE builds real wealth. But it builds it for people who respect the work, not for people who assumed the work was optional.
If you are looking at a deal and you are not confident you have covered all of this, that is not a gap in your knowledge. That is a gap in your team. I have been doing this for thirty years, bid reviews, pre-purchase assessments, owner's rep, full project oversight. I will open the hood with you and tell you exactly what you are looking at.
Start with fifteen minutes. calendly.com/jeph-reit.