Real Estate Due Diligence Flashcards
7 cards from real Real Estate Investing practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Real Estate Due Diligence flashcards as text
What is the primary purpose of a Property Condition Report (PCR)?
Answer: To document physical condition and estimate current and future repair costs
A PCR provides a comprehensive assessment of a property's physical systems and components, including estimates of immediate and long-term capital expenditure needs.
What does the term 'deferred maintenance' mean in real estate due diligence?
Answer: Repairs and upkeep that have been postponed, leading to cumulative deterioration
Deferred maintenance refers to necessary repairs that have been neglected over time, which can signal larger underlying issues and significant future capital expenditures for a new owner.
What is the 'effective age' of a building?
Answer: The age reflected by the building's condition regardless of its actual chronological age
Effective age is based on a building's physical condition and maintenance history; a well-maintained older building may have a lower effective age than its actual construction date suggests.
Which property system typically represents the largest capital expenditure when it requires full replacement in a multifamily property?
Answer: Roof and HVAC systems
Roofs and HVAC systems are among the most expensive capital items to replace in multifamily properties due to their scale, complexity, and materials cost.
What is a 'capital expenditure reserve' (CapEx reserve) in real estate investing?
Answer: Money set aside specifically for major repairs and system replacements
CapEx reserves are funds an investor sets aside to fund periodic major expenses like roof replacement, HVAC systems, or parking lot resurfacing that occur infrequently but are predictable.
What does a boundary survey reveal about a property?
Answer: The exact legal boundaries, dimensions, and any encroachments or easements
A boundary survey establishes the precise legal boundaries of a parcel, identifying property lines, encroachments from neighboring properties, and recorded easements.
What is 'functional obsolescence' in the context of real estate due diligence?
Answer: Loss of value due to outdated features or poor design that reduces market appeal
Functional obsolescence is a loss of value from outdated design features, inadequate floor plans, or inadequate utilities that make a property less competitive, even if it is physically sound.