The Curious Case of Due Diligence

Is there any point you wish to draw to my attention?’
‘Yes, to the curious incident of the dog in the night-time.’
‘But the dog did nothing in the night-time.’
‘That was the curious incident’, remarked Sherlock Holmes.

I spend a good chunk of my idle time poring over EG’s investment track record, looking for clues for how we can improve.

A curious fact that I’ve uncovered is that EG has tended to do better when we’ve acquired properties that are externally managed.

Why? One likely reason is that internally managed properties provide the seller with an enhanced opportunity to deceive the buyer.

Here’s an example. Many years ago, I was performing due diligence on an office building and noticed that the outgoings were slightly lower than usual. But when I looked at the individual expense categories, they all seemed reasonable.

It took a couple of sleeps, but I woke up one morning with the thought: there is no air conditioning maintenance cost on the schedule.

After a bit of gentle but persistent inquiring, the air conditioning contractor told us (off the record) that he had been instructed by the owner a couple of years ago to bill all his invoices to another property that the seller owned.

Buyer beware.

What ruse have you uncovered during DD? Share your experience.