The Essential Due Diligence Checklist

You can use any number of strategies to generate sizeable profits from property, but they all share one common factor: to make the most out of the deal, you have to do your due diligence.

There’s no denying that buying real estate is exciting. Browsing online classifieds, attending property inspections, placing urgent phone calls to agents and solicitors as a deal is hammered out… It’s enough to make your heart pound just thinking about it!

Perhaps that’s why so many investors admit that once the property bug has bitten it well and truly takes hold, making it difficult to stop at just one deal.

The problem with this is that would-be landlords can get so caught up in the excitement of investing in property that they fail to dot their i’s and cross their t’s every step of the way.

Where to start with your due diligence?

Your first step is to identify the investment strategy that suits you, because each strategy has different due diligence steps. This means you may need to broaden your horizons and consider investing beyond your own backyard, which makes it even more important to conduct thorough research.

The purpose of conducting due diligence is to create a story about a property and a location, so you can evaluate all of the facts and figures before making an investment decision.

  • Capital growth: What kind of property price growth has the area typically achieved on a 3-year, 5-year and 10-year basis?
  • Comparable sales: What have homes of a similar size, features and quality sold for in the street and/or suburb?
  • Employment: Is there a diverse range of industries offering employment to local residents?
  • Insurance risk: Is the property located in an area that is subject to flooding, bushfires, or other natural disasters that could impact on insurance premiums?
  • Infrastructure: Can you identify much private and government spending on upgraded infrastructure, roads, amenities and facilities?
  • Location: What are the good and bad parts of town? Are you buying at the top of the town, or in an area that has scope to improve because the trend of that area is rejuvenation?
  • Population: Is the region’s population growing, therefore underpinning strong demand?
  • Property inspections: Have you inspected the property yourself, and/or organised a building and pest inspection?
  • Rental appraisals: Have you interviewed several property managers and sought out independent feedback from people unrelated to the selling agent?
  • Supply and demand: An area might have good population growth but a massive amount of development going on, which means the market will take a long time to absorb that excess supply.
  • Your own risk profile: Resource towns may seem ‘sexier’, but if you have a low risk profile that type of investment may not be the best move.

Additional due diligence checks for units:

When you buy an apartment, you’re not just inheriting a property, you’re inheriting the common property and close neighbours, too. Therefore, here are a couple of extra checks when buying an apartment:

  • Block size: Is the unit in a small boutique complex of six, or a huge high-rise with hundreds of apartments? For the latter, consider how many neighbouring apartments are empty, as that could impact on your rental returns.
  • Comparable sales: In a unit situation, look at the lowest prices that units have sold for in the complex.
  • Owners corporation: You need to know how much is in the sinking fund and whether or not the body corporate is broke. What is the potential for body corporate fees to increase, and is the fund holding enough money to manage future maintenance matters?

To discuss this article or anything to do with your finances, please call our office today and we will be happy to assist you.

More on Investing

  • SHARE

Disclaimer:

This article is written to provide a summary and general overview of the subject matter covered for your information only. Every effort has been made to ensure the information in the article is current, accurate and reliable. This article has been prepared without taking into account your objectives, personal circumstances, financial situation or needs. You should consider whether it is appropriate for your circumstances. You should seek your own independent legal, financial and taxation advice before acting or relying on any of the content contained in the articles and review any relevant Product Disclosure Statement (PDS), Terms and Conditions (T&C) or Financial Services Guide (FSG).

Please consult your financial advisor, solicitor or accountant before acting on information contained in this publication.


Proudly Part Of

The Money Quest Group (MQG) is one of Australia's leading boutique mortgage broking businesses, with a network of more than 600 brokers nationwide. Known for their exuberant culture and superior support, MQG provides brokers access to a range of financial products from more than 60 lending institutions and suppliers, and exclusive access to in-house benefits and services.

© 2017-2024 MoneyQuest Australia Pty Ltd, Australian Credit Licence 487823