What I verify before I close

Once you walk a building and decide to move forward, a critical window opens between the accepted offer and the close of escrow. In residential transactions, this is the inspection period. In commercial real estate, this is the due diligence phase, and the scope is significantly broader.

This is the exact framework I use to review every potential acquisition.

When a property has existing tenants, the seller provides a “rent roll” which is just a list of units, tenant names, current rental rates, and lease expiration dates. Your primary task is to verify the accuracy of this data against the source documents.

Request and read the actual lease agreements. Do not rely solely on the summary spreadsheet. You need to investigate three critical variables that a rent roll summary typically omits: tenant renewal options (including predetermined future rates), active rent concessions or side agreements, and specific landlord obligations.

For example, a tenant holding a three-year renewal option at below-market rates creates a structural ceiling on your potential upside. Sellers may not highlight these clauses, so it’s important to dig a little deeper to see what you can find.

An estoppel certificate is a brief document signed by the tenant confirming the current parameters of their lease agreement. It verifies the rent amount, start date, expiration date, security deposit held, and any outstanding landlord obligations. This document prevents a common post-close issue: discovering the seller made verbal agreements with a tenant that contradict the written lease.

Requesting estoppels is standard practice. A tenant who delays or refuses to sign is providing an early warning sign about the stability of that tenancy.

A Phase 1 Environmental Site Assessment is a historical desk review. A specialized consultant evaluates the historical use of the property and adjacent parcels to identify potential contamination risks. This process typically costs between $1,500 and $2,500 and requires two to three weeks. It is a standard requirement for almost all commercial transactions, and commercial lenders will mandate it before funding.

If the Phase 1 identifies specific risks, such as historical operations as a dry cleaner, auto repair shop, or gas station, you must escalate to a Phase 2 assessment. This involves physical soil and groundwater testing, costing anywhere from $5,000 to over $25,000 depending on the required scope. For me personally, if the Phase 1 doesn’t come back clean, I’m probably not moving forward because I don’t have the capital to fix those kind of issues and I’d rather just find another property.

Listing details frequently contain inaccuracies. I have analyzed properties advertised at 8,000 square feet that measured closer to 7,400 square feet. A discrepancy of that scale fundamentally alters your per-square-foot underwriting, target lease rates, and ultimate valuation. Pull the county records, request the original as-built architectural drawings, and physically verify the dimensions with a tape measure on critical spaces.

Retain an experienced commercial building inspector to evaluate the major structural and mechanical systems. They will assess the roof, HVAC units, structural integrity, electrical panels, and plumbing systems to identify near-term capital expenditure requirements. The resulting inspection report provides concrete data for price renegotiations or seller credits, eliminating capital surprises immediately after closing.

Deferred maintenance is often visible during an initial walkthrough, but the inspection report quantifies the exact financial exposure. A vague observation like "the roof looks aged" becomes an actionable data point: "the roof has three to five years of remaining useful life, and replacement costs will total $40,000."

This line item frequently causes underwriting errors. In California, commercial property is reassessed to the actual purchase price upon transfer of ownership. The current owner might have a protected tax basis of $200,000 from a long-term holding period. If you acquire that asset for $900,000, your annual property tax obligation increases proportionally.

On a $900,000 acquisition in California, expect post-close property taxes to run roughly $9,000 to $11,000 per year, a stark contrast to the seller's historical tax bill. That translates to an additional $750 to $900 per month that must be accounted for in your operating expense model.

Deals that appear viable on the seller's historical financial statements can fall below target yield thresholds once you model the corrected post-acquisition property tax. This is one of the baseline adjustments required for any seller-provided expense data.

Every step in this process, from verifying rent rolls and obtaining estoppels to conducting environmental reviews, physical measurements, structural inspections, and tax modeling, serves a single purpose. You are replacing the seller's marketing narrative with a verified, data-driven model of the asset. The seller's incentive is to present an optimized version of the property; due diligence is how you calculate the actual baseline performance.

If you want to map out the entire pre-close workflow, including how to integrate these variables into a rapid back-of-the-envelope underwriting model, the complete strategy is detailed in the Concrete Returns playbook.

Javi