How to Perform Due Diligence When Investing

Due diligence is not something that only brokers and portfolio or fund managers are responsible for, though the term may have started out that way. Now, the phrase describes any level of checking that an investor does before buying a stock, a company, or any other type of alternative investment. 

Due diligence is crucial. It’s the phase when you dive deep into understanding a potential investment before you invest. This research and review period could save you a lot of lost money in the future.

So what things should you be reviewing when it comes to doing your due diligence?


How Big Is the Company, & How Old Are They?

The first, and easiest, thing to consider when doing your due diligence about a potential investment or fund is to look at the company involved. This could mean looking at the publicly traded company you’re considering shares in or reviewing the fund management company that manages a mortgage investment pool

Ask yourself the following:

  • How large is the company?
  • What level of expertise is there amongst the team?
  • Do they have the resources needed to do a good job?
  • Has there been growth over time? 
  • How old is the company?


These things will help you better understand if the investment or management company is a reliable bet with the resources and experience to continue to grow over time. 


Revenue, Profit, & Margin Trends

One of the most critical aspects of due diligence is looking at the numbers. Before you invest in anything, you need a solid understanding of the costs and fees associated with the investment and if these costs are warranted based on its historical performance. What kind of revenue is this company generating? Look at the profit margins of any potential company to see if they’re rising or falling.

When looking at the financials of alternative investments, such as mortgage pools, review the dividends. This kind of information should be readily available and provided by the mortgage investment corporation (MIC). 


What Do They Do? What Industries Are They Invested In?

When investing in any market, look at the market itself. Suppose you want to buy shares in a tech company that hasn’t released anything new or innovative recently yet has numerous competitors. In that case, this may be a red flag.

Also, consider your own knowledge and understanding of the industry. If investing in real estate, are you knowledgeable in the real estate market? You don’t want to be worrying about every minor market shift that won’t actually affect long-term investments or specific sectors.


Who Are Their Competitors?

Looking at a company’s competitors will help you better understand where they sit within their industry. Compare the performance data of a few different competitors to see how this company performs. 


What Do the Management & Ownership Look Like?

A ship is only as effective as it’s crew and captain. You could have a successful company with a great idea and a clear market need. Still, suppose the people in charge are inexperienced, or there’s a constant turnover. In that case, the ship’s direction will continuously shift. Look to see how long members of the team have been with the company to determine reliability. If it’s a newer company, consider doing a bit of background digging on some higher-level managers to look at their previous experience. 


What Are the Risks, & How Do You Feel About Them?

Ultimately, due diligence is all about assessing risk. Knowing the potential future profit and longevity of a company or investment will help you make an educated decision on whether or not to invest. When it comes to your money, putting this effort in at the beginning will pay off in the end. 

If you’re interested in alternative investment opportunities in real estate, a mortgage pool might be the perfect fit. Start researching a suitable MIC today. Reach out to Jordan on our team to learn more about Cooper Pacific’s history and review past years’ financial documentation and performance records or the investment pools we manage.

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