Due Diligence That Changes the Numbers, Not Just the File

Most diligence produces documents. This sets out the checks that actually move an income, a cost or a value line, and the order that finds the expensive problems first.

Diligence has two purposes that are easy to confuse: confirming that you can safely own the asset, and establishing what it is actually worth. The first produces a file. The second changes numbers. The sequence below is ordered by how much each check can move the model, so that the expensive discoveries happen while you can still act on them.

Before stage one

Before commissioning anything, write down which lines in your model are currently unevidenced. That list is your diligence scope, and it will be shorter and better targeted than a standard checklist. Commission in order of cost: the cheap checks that could end the transaction come before the expensive ones that merely refine a figure.

• A list of every model line that currently rests on an assumption rather than a document.
• A stated budget and sequence, with the decisive cheap checks placed first.
• Written walk-away conditions, so a fundamental finding produces a decision rather than a debate.
• Agreement with the seller on what will be released and when.
• One person accountable for translating findings into model changes.

Stage 1: Verify the income before anything else

Rebuild the rent roll from registered contracts, then reconcile at least twelve months of receipts against what those contracts required. This is inexpensive, it is the fastest way to discover that the income is not what the listing described, and it moves the largest line in the model. Record every variance between your version and the seller's.

• Deliverable: A reconciled rent roll with a variance list and a collection record.
• Owner: Buyer or the buyer's adviser.
• Approval gate: No income line survives into the model without a contract and a receipt behind it.

Stage 2: Read the leases rather than the summary

Lease terms change value in ways a rent roll cannot show: break rights, rent-free periods still running, review mechanisms, repairing obligations, who pays utilities, assignment provisions and what happens at expiry. A single break right in the largest lease can matter more than every operating cost in the building.

• Deliverable: A lease abstract per unit covering term, incentives, reviews, obligations and breaks.
• Owner: Legal adviser instructed by the buyer.
• Approval gate: Every abstract has been checked against the registered contract rather than a copy supplied informally.

Stage 3: Normalise the cost base from invoices

Work through the invoice file, annualise each category, then add what the current owner is not paying: a market management fee, insurance at a quoted premium and a realistic maintenance regime for a building of that age. The adjustment between the historic statement and the normalised one is frequently the second largest change diligence produces.

• Deliverable: An adjustment schedule from the seller's statement to a normalised cost base.
• Owner: Buyer, with quotations from a manager and an insurer.
• Approval gate: Each adjustment is supported by a quotation rather than an estimate.

Stage 4: Survey the building and price what you find

Commission a condition survey covering structure, envelope and the mechanical, electrical and plumbing systems, including the roof and the plant room. Convert the findings into a dated capital schedule with costs that include access and making good. This is the check most likely to produce a quantified price argument.

• Deliverable: A condition report converted into a dated and priced capital schedule.
• Owner: Technical surveyor instructed by the buyer.
• Approval gate: Nothing in the report is left out of the schedule, including items noted in passing.

Stage 5: Confirm title, ownership eligibility and permitted use

Establish the title position, the registration history and whether the property and your buyer category fall within the framework that applies to you, which for a non-Saudi buyer means confirming the position against what REGA publishes on the implementing regulations. Confirm with the relevant municipal authority that your intended use is permitted. These are fundamental rather than priceable findings.

• Deliverable: A title and eligibility opinion plus written confirmation of permitted use.
• Owner: Licensed legal adviser.
• Approval gate: Anything unresolved here is treated as a condition, never as a discount.

Stage 6: Check the licences and compliance the income depends on

Rental income often depends on permissions beyond ownership: tenancy registration, licensing for short-stay or serviced use, civil defence approvals, and anything specific to a commercial tenant's activity. Income that depends on a permission the building does not hold is not income, and the gap is sometimes expensive to close.

• Deliverable: A register of every permission the building and its uses rely on, with its current status.
• Owner: Buyer with legal support.
• Approval gate: Each income stream is matched to the permission that supports it.

Stage 7: Establish the tax and structure position

Confirm how the transaction and the income will be treated, including the Real Estate Transaction Tax position, whether VAT applies to the supplies involved, and how income will be taxed in your structure. Published headline rates are the starting point and the application to your facts is not; that is a question for ZATCA and a licensed tax adviser, taken before the structure is fixed.

• Deliverable: A written tax position covering acquisition, the hold and the intended exit.
• Owner: Licensed tax adviser.
• Approval gate: The exit treatment has been considered before the entry structure is settled.

Stage 8: Rerun the model and restate the price

Feed every finding back into the model in one pass, then compare the result with the offer. Separate the priceable findings, which become a reduction, a retention or seller works, from the fundamental ones, which become conditions. Issue a revised position in writing with the schedule behind it, because a quantified argument is far harder to refuse than an opinion.

• Deliverable: A revised model, a restated price and a conditions list, all referenced to the findings.
• Owner: Buyer.
• Approval gate: Every material finding appears either in the price or in the conditions, and none is simply noted.

Handovers between stages

The persistent failure is that findings reach a report and never reach the model. A surveyor writes prose, a lawyer writes qualifications, and the person maintaining the spreadsheet reads neither in full. Appoint one person to translate each report into model lines, and have the author of each report confirm that the translation is faithful. That single step recovers more value than any additional check.

How you know it is finished

Diligence is complete when no line in the model rests on an assumption you could have evidenced, every finding sits in either the price or the conditions, and the fundamental questions are closed rather than discounted. Requirements, rates and procedures in this area change, so record the date on which each position was confirmed and re-confirm anything relied upon if completion is delayed.

Domira builds the numbers on a Saudi property with you before you commit: rent and cost evidence, condition and capital expenditure, the appraisal and the sensitivities that decide whether the deal survives a bad year. The investment decision stays yours, and so does the advice of your licensed tax and legal advisers.