Due diligence isn't a checklist you survive between mutual acceptance and closing. It's where deals get saved, profits get protected, and occasionally where you learn something expensive. These are the moves I teach on our live calls, plus the scar tissue behind them. For the full property-and-financial checklist that sits underneath all of it, pair this with the due diligence playbook.
Always do the sewer scope
I have a lot of experience with flippers who skipped the sewer scope. Then their end buyer's inspector runs one, finds a $20,000 repair, and the entire flip profit evaporates in a single line item at the worst possible moment: after the rehab, during someone else's inspection.
A sewer scope costs a few hundred dollars. On rural properties, the well and septic drain-field inspections are the same story: known profit-killers that are cheap to check and brutal to discover late. I make the full case for it in why you should always scope the sewer line.
On a 34-unit apartment complex we were buying, the inspection revealed the property needed about $200,000 for a new roof. We paid about $1,000 for the sewer scope, and three of the four sewer lines were so clogged they couldn't even get the camera through. We asked for the $200,000-plus in repairs. The seller countered with $5,000. Sometimes it unfortunately ends up that way, and that's the cost of doing business, but you want to know before closing, when it's still their problem to negotiate, not after, when it's only yours.
Renegotiate once, not twice
When the inspection surfaces real problems, the renegotiation has rules:
- Finish ALL your inspections first. It's harder to go back twice than it is to go back once. If the sewer scope is still pending, either wait for it or knowingly accept the risk of a second ask, because second asks kill goodwill.
- Full transparency wins. Show the contractor invoices. "I've had four people out, and every one of them said these floors are beyond repair" lands, especially when you can add that any other buyer's inspector will find exactly the same thing.
- Deliver bad news in person, and lead with it. Find a point of commonality, apologize for having to have the conversation, then get to the number.
- Throw them a bone. Pair the price reduction with something they want, like a faster close.
- Hold concessions in reserve. Releasing your earnest money directly to the seller, or handing over $1,000 to $2,000 when they sign the price-reduction addendum, shows commitment. Don't lead with these; keep them for the final push.
Most sellers are reasonable when you explain the why. The ones who aren't were going to be a problem anyway.
One more rule: avoid the double negative. Don't hit a seller with a price cut and a brand-new contract demand in the same conversation. Decide which one matters more and fight for that.
The $5,000 rule: escrow holdbacks for post-closing possession
Any time a seller (or their tenant) will still be in the property after closing, I want an escrow holdback: a minimum of $5,000 of the seller's proceeds held at escrow and released only when they hand over the keys. Even if the stay is four days.
The common alternative, a per diem clause where the seller pays a daily rate (often 1/30th of your monthly principal, interest, taxes, and insurance), is fine but it's not painful enough to change behavior. An untouchable $5,000 sitting at escrow is a real incentive to leave on schedule.
Remember what you actually are the day after closing with a seller still inside: a landlord, with them as your tenant, in whatever state you bought in. In tenant-friendly states, a seller who won't leave is a genuinely expensive problem. The holdback is cheap insurance against it.
Verify everything the listing told you
The rest of my due diligence layer is about distrust of paperwork:
- The T-12 versus the story. Whatever the seller claims about expenses, verify it against the actual trailing twelve months.
- Rent comps with three sources, because the proforma is marketing (here's a fourplex that passed the 1% rule and still failed).
- Utilities: who really pays what. "Tenants pay all other utilities" needs to specifically include water and sewer, in writing.
- Vacancies: why? Four vacant units out of eight is a question with an answer, and you want it before pricing, not after.
- Old buildings: check the majors. Plumbing, electrical, roof, foundation, siding. Updated majors mean standard reserves can stand (my standard numbers here); original majors mean a renovation budget or fatter reserves.
We only get to negotiate the price once: on the buy. Due diligence is the window where the facts are still negotiable. Use all of it, and run the next deal against a standing list so nothing slips. You can start with my free due diligence checklist.
This article is for educational purposes only and is not tax, legal, or financial advice. Consult a qualified CPA or tax attorney about your specific situation.
