A Step-by-Step Guide to Conducting Due Diligence on a Real Estate Investment

Thinking about investing in real estate?
Smart move—if you do it right.

The truth is, most real estate mistakes don’t happen after the deal closes. They happen before—when people skip due diligence or take shortcuts.

If you want to protect your capital, uncover red flags early, and avoid costly surprises, here's a step-by-step breakdown of the due diligence process I use (and teach) before closing any real estate deal.

1. Start with the Market, Not the Property

Before you even look at a building, study the market.

• Is demand rising or falling?

• Are prices trending up, flat, or declining?

• What’s the local job growth, migration, and development activity?

If the market doesn’t make sense, it doesn’t matter how nice the deal looks.

Action Step: Review comps, rental data, and macro trends in the area. Strong markets make strong deals.

2. Inspect the Property—Thoroughly

Don’t trust glossy photos or seller promises. You need a full inspection.

• Check for structural issues, outdated systems, or deferred maintenance

• Research the property’s repair history and prior renovations

• Look for environmental or zoning red flags

This is where most amateur investors get burned—by skipping the details.

Action Step: Hire a licensed inspector. Walk the property yourself. Document everything.

3. Scrutinize the Financials

The numbers tell the real story. If they don’t add up, walk away.

• Review the rent roll, profit & loss, T12 (trailing 12 months), and tax bills

• Verify income and expenses line by line

• Stress-test for vacancy, rate hikes, or unexpected repairs

Action Step: Underwrite the deal yourself—even if a broker gives you a pro forma. Don’t outsource your judgment.

4. Confirm Legal and Zoning Compliance

If you can’t legally operate the property the way you plan to, you’re in trouble.

• Run a title search to check for liens, easements, or ownership issues

• Review lease agreements, HOA rules, and zoning ordinances

• Ensure the use case (short-term, multi-unit, commercial, etc.) is fully compliant

Action Step: Get a real estate attorney to review docs and title. One missed clause can kill your returns.

5. Vet the Seller (Yes, That Matters Too)

The seller can make or break your deal.

• Do they have the legal right to sell?

• Are there lawsuits, tenant disputes, or hidden liabilities?

• Are they being transparent—or evasive?

Action Step: Do a background check. Ask direct questions. If something feels off, trust your gut.

Final Thought: Slow Is Smooth, Smooth Is Fast

In real estate, rushing leads to regret.
The smartest investors aren’t the ones moving the fastest—they’re the ones who do the deepest work before they move.

Due diligence isn’t a checklist—it’s your defense.
Take it seriously, and you’ll avoid 6-figure mistakes.

Follow me on: 

• LinkedIn: @MarcinDrozdz
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The information contained herein is for general guidance on matters of interest only. This information contained herein is not intended to provide you with any advice on financial planning, investment, insurance, legal, accounting, tax or similar matters and should not be relied upon for such purposes. Marcin Drozdz, M1 Real Capital Inc are not financial, legal or tax advisers. You should assess whether you require such advisers and additional information and, where appropriate, seek independent professional advice. You understand this to be an expression of opinions and not professional advice. You are solely responsible for any actions you take with the content and hold Marcin Drozdz and M1 Real Capital Inc or any of it's affiliates harmless in any event or claim.