Doing your property due diligence is one of, if not the, most important thing any property investor needs to do. This web page endeavours to give you some useful advice to help you to make the right decisions when researching potential property investment deals.
It’s when this vital cog in the wheel is left out or is not done effectively enough, that we see investors having financial problems.
But what does doing your due diligence actually mean?
Doing your property due diligence correctly means that you take time to investigate, calculate and research all the ins and outs of a particular property venture. You would look into things such as:
- Is the location a good area without to much crime?
- Are the projected rental yields accurate?
- Do properties rent well in the area?
- How much will the property be worth if you want to sell it?
- Is there regeneration going on in the area?
- Are there good schools, hospitals or Universities near by?
- Is the property within a commutable distance to the nearest town or city?
- If you are planning on doing a renovation or refurbishment, how much will it cost and how long will it take?
- What are the comparable rent prices of similar properties in the area?
- What are the comparable sale prices of similar properties in the area?
These are just a few questions that might come up when you do your due diligence on any particular property investment.
You have to try and look at the worst case scenarios as well as the best and you have to play devils advocate with yourself and say things like – “what if the current fast rising property market was to slow down – would I still make a profit on this development?”
It is only by looking and analysing all the angles of an investment property deal that you can safely go forward confident that you have a contingency plan to deal with any eventualities that come up.
If you are buying a property that is already tenanted then part of your property due diligence will be to check things like:
- Does the current tenancy agreement meet your requirements?
- Who is holding the deposit that the tenant paid?
- Did the tenant pay a deposit?
- How do you go about transferring the deposit to yourself or to an organisation you feel comfortable with holding the deposit on yours and the tenants behalf?
- Has the property already been damaged by the current tenant?
Another thing to be very wary of is to make sure the figures that are being given to you regarding the property are accurate. It’s a waste of time buying a property off another investor who tells you that the property can rent out for £1000 per month, only to find out later that he has been renting it out for £850 per month.
The other investor could have had problems renting it because there are so many other similar rental properties in the area that he needed to drop the rent, just to get a tenant.
If you are a beginner, also beware of buying off someone more experienced who tells you the refurbishment of a property will only take, say – one month. Yes, it might take them one month. That is because they have all the contacts and the tradesman on call ready to go for their jobs. But for you as a newbie it might take considerably longer.
The bottom line is that no matter if you are new to property investing or you are a seasoned pro. You will always need to do your due diligence on each property venture you take on.
The day you stop doing your property due diligence is the day you start losing money.**Nothing on this website should be confused with financial or legal advice. If you need this, or any other type of advice, please seek the help of a competent professional. In addition, because real estate laws change all the time and differ from state to state, and even city to city in the same state, everything in these pages should be considered general marketing advice and ideas. Please see link to full Disclaimer at the bottom of this page.