If your goal is to have the highest probability to achieve a successful return on investment, then it’s fair to give some due diligence items more weight than others.

Let’s look at the three top ranking characteristics from the 100-plus items included in our Economic Valuation System (EVS).

1. Functional design: This refers to the ability of the property’s amenities to support the preferred lessee profiles. If a property doesn’t support its preferred lessee profiles, the owner can look forward to three possible courses of action: (1) Vacancy. (2) Below market rent. (3) Extensive capital improvement costs.
2. Capitalization rate: Whereas functional design refers to the property’s improvements, the capitalization rate refers to the property’s operating financial state. The achievement of an accurate rate requires a complete review of the properties operating income and expenses. This analysis will help to find the property’s current value as well as the possibilities for its future value.
3. Mortgage: Every property has to have someone who is the designated asset manger. One of the many hats an asset manager wears is to act as treasurer for the property. The two most important functions of the treasurer are to secure a permanent reasonable debt rate and to push the principal payments as far into the future as possible. These functions remove the interest rate risk and allow the owner to pay the property’s debt with tomorrow’s dollars.