What is a Due Diligence?
A comprehensive investigation and analysis of a property before purchase, including legal, financial, environmental, and physical assessments to identify risks and validate investment decisions.
Understanding Due Diligence
Due diligence typically includes multiple areas of investigation:
**Legal Due Diligence:**
- Title search and ownership verification
- Property boundaries and survey review
- Easements and encumbrances
- Zoning and land use restrictions
- Environmental liens or violations
- Lease agreements (if applicable)
- Litigation history
**Financial Due Diligence:**
- Income and expense verification
- Occupancy and revenue analysis
- Operating expense review
- Tax assessments and obligations
- Debt and lien verification
- Financial projections validation
**Physical Due Diligence:**
- Property inspection and condition assessment
- Infrastructure evaluation (utilities, roads, buildings)
- Environmental site assessment
- Soil and geotechnical analysis
- Access and ingress/egress verification
- Utility availability and capacity
**Regulatory Due Diligence:**
- Zoning compliance and permitted uses
- Permit status and compliance
- Code violations or outstanding issues
- Regulatory restrictions or requirements
- Future development restrictions
**Market Due Diligence:**
- Competitive analysis
- Market demand assessment
- Pricing and occupancy trends
- Future market conditions
For outdoor hospitality properties, due diligence often reveals critical issues such as:
- Zoning restrictions that prevent intended use
- Environmental constraints (wetlands, protected species)
- Utility limitations (insufficient water, sewer, or electrical capacity)
- Access issues (private roads, easement requirements)
- Hidden costs (required infrastructure improvements)
- Regulatory non-compliance requiring remediation
The due diligence period typically ranges from 30-90 days, though complex properties may require longer. During this period, buyers can:
- Conduct inspections and studies
- Review documents and records
- Negotiate repairs or price adjustments
- Walk away from the deal if issues are discovered
Due diligence costs vary based on property complexity:
- Basic due diligence: $10K-$25K
- Complex properties: $25K-$75K+
- Costs include inspections, surveys, environmental assessments, legal review, and feasibility studies
Sage Outdoor Advisory provides comprehensive due diligence support as part of our feasibility studies and appraisal services. We help clients identify potential issues, assess risks, and make informed investment decisions. Our due diligence process includes zoning analysis, market evaluation, financial review, and strategic recommendations.
Examples of Due Diligence
- •An investor considering a 40-acre glamping property conducts due diligence and discovers: (1) The property has a conservation easement restricting development to 10 acres, reducing buildable area by 75%, (2) Zoning requires special use permit that takes 12 months and may not be approved, (3) Environmental assessment reveals protected wetlands affecting 8 acres, (4) Utility costs are $180K (not $80K as estimated) due to distance from service, (5) Access requires easement from neighboring property owner who is unwilling to grant it. These discoveries during due diligence allow the investor to renegotiate price or walk away, avoiding a costly mistake.
- •A buyer performs due diligence on an existing RV park and discovers: (1) Financial records show actual occupancy is 58% (not 75% as represented), reducing NOI by $120K annually, (2) Septic system is failing and requires $85K replacement, (3) Property has $45K in unpaid property taxes, (4) 15 sites lack proper permits and may require removal, (5) Market analysis shows declining demand due to new competition. The buyer uses these findings to negotiate a $200K price reduction or decides not to proceed.
- •Due diligence for a campground purchase reveals positive findings: (1) Zoning permits all intended uses, (2) All permits are current and property is in compliance, (3) Environmental assessment shows no issues, (4) Financial records verify represented income, (5) Infrastructure is in good condition with recent improvements, (6) Market analysis shows strong demand and growth potential. These findings validate the investment and allow the buyer to proceed with confidence.
Common Use Cases
- •Property acquisition and investment decisions
- •Risk assessment before purchase
- •Price negotiation based on discovered issues
- •Validating seller representations and property condition
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Frequently Asked Questions About Due Diligence
What is due diligence and why is it important?
Due diligence is the comprehensive investigation process before purchasing a property. It's critical because it identifies potential risks, validates assumptions, and helps avoid costly mistakes. For outdoor hospitality properties, due diligence can reveal zoning issues, environmental constraints, infrastructure problems, or financial discrepancies that could significantly impact the investment.
What does due diligence include for outdoor hospitality properties?
Due diligence typically includes legal review (title, zoning, easements), financial analysis (income, expenses, taxes), physical inspection (condition, infrastructure), environmental assessment, regulatory compliance review, and market analysis. The scope depends on property type and complexity, but should be comprehensive enough to identify all material risks.
How long does due diligence take?
Due diligence periods typically range from 30-90 days, though complex properties may require longer. The timeline depends on property complexity, availability of information, and the scope of investigations required. Sellers may be willing to extend due diligence periods for complex properties.
What happens if due diligence reveals problems?
If due diligence reveals issues, buyers can typically: (1) Negotiate price reductions or seller repairs, (2) Request extended due diligence to investigate further, (3) Walk away from the deal (if contract allows), or (4) Proceed with full knowledge of risks. The specific options depend on the purchase contract terms.
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