Types of due diligence

The due diligence of a property is sometimes very extensive and is divided into different areas of analysis

Financial Due Diligence

In the course of financial due diligence, all financially relevant data relating to a property is collated and prepared, including income, expenses, opportunities and risks.

In addition to analysing current property valuations - often carried out by external consultants - the value of the property forecast for the future is also taken into account. This is usually determined using the discounted cash flow method. 

The financial due diligence forms the basis for the investor's purchase decision, as well as the final purchase price and the financing options offered by banks and other capital providers.

Legal and Tax Due Diligence

Legal due diligence includes analysing rental and lease agreements, rental securities, other contracts and obligations as well as insurance relationships.

The current land register data for the property is also checked.

The aim of tax due diligence is to analyse the various types of tax that may arise when acquiring a property and to identify any tax risks.

The scope of tax due diligence can vary greatly from property to property and depends, among other things, on whether only a plot of land or a vacant building is being acquired or whether the buyer is also entering into existing rental agreements when purchasing a property.

Technical Due Diligence

Technical due diligence involves determining the technical condition of the property reliably and in detail and identifying risks that may arise from the construction or fire protection, for example.

All relevant technical information and documents are checked, such as authorisation documents, maintenance and inspection records, energy performance certificates and documents providing evidence of maintenance measures.

In addition, the technical building equipment is assessed, the need for repairs to the property is determined and any potential for modernisation and third-party use is examined.

In order to ensure the most accurate technical due diligence possible, property inspections are carried out by specialists such as architects or civil engineers. This allows any defects to be identified directly on site and the measures required to rectify them to be clarified.

Environmental Due Diligence

Environmental due diligence is about clarifying technical and legal environmental issues - throughout the entire life cycle of the property, i.e. from planning and construction through to utilisation and possible sale (and beyond).

As with the technical due diligence, a property inspection takes place as part of the environmental due diligence.

The property is assessed according to environmental criteria. Important aspects here include emissions and possible hazardous substances, water supply and disposal, building pollutants, any contaminated sites and the risk of environmental disasters such as earthquakes or flooding.

In addition to examining the property, geological investigations are usually also carried out. These are particularly important if there is a suspicion of contaminated sites.