My "due dilligence" list - a living document

[mcdeyess]

I am a bit of a newbie with only 1 IP. I have created this list of what steps to take as part of due diligence. It is QLD specific and very generalised. I would appreciate any feedback as I am sure that I have missed quite a lot. Apologies for any naivety on my behalf

Value
• RP Data (or similar) – Sales data for the property and surrounding area. Unimproved value of land.

Land
• NRM – Details of any easements on the property
• Council – Flood line, sewerage, water, gas and telephone

Infrastructure
• Council – Current zoning and possible changes, any restrictions on use (i.e. Protected vegetation or controlled demolition area)
• Council – Property boundary (confirmed by surveyor)

Area
• Location specifics – Access to schools, shops, transport, employment, café precinct, major roads etc
• Council and State government planning – Review of Brisbane 2010 and 2016 plan in addition to local council plans for future infrastructure
• Transport infrastructure – Planned future busway or transit tunnels
• Private development – Planned (i.e. Shopping centres, apartment buildings)
• Future land releases
• Known flight paths

Demographics
• Estimated future population migration for the area. Broken down into age demographics – apply to the demographics your property will cater to.
• % renters vs property owners in the area
• Employment statistics

Building
• General details – Year built extension/renovation details.
• Council – Relevant approval sought for extension/renovation.
• Aspect of house
• Depreciation – Not full schedule but estimate
• Pest inspection
• Building inspection
• Valuation (Get a professional valuation or rely on RP Data in addition to own judgement?)

Rental details
• If currently tenanted contact agency for references, history and copy of lease
• Property management fees
• Current rent and when it was last increased
• Rental appraisal (preferably from the current property manager and another in the area)
• Rental vacancy rate in the area
• Estimate of how long it will take to be tenanted if not already
• Landlord’s insurance quote (opinions on this, do you have it?)

Financial (assuming you have the loan already in order)
• Assessment of financial position if property is purchased. This will include fees incurred during purchase such as stamp duty, mortgage insurance, conveyancing, etc. The assessment should include figures to calculate the net loss/profit made before and after tax.
• Insurance quote

Legal
• Relevant title searches (This is normally done as part of settlement. Is it recommended to perform your own search prior to this?)

Other
• Confer with neighbours if possible to get a “feel” for the area and any issues.
• Visit property at different times of the day/on weekends to gauge activity in the area
• If some renovation is required, perform an accurate written estimate of what needs to be done and the cost.
• Owners reason for selling (usually easy to get from the agent)
• Long or short settlement preferred

Townhouse/Unit specific
• Body corporate details – contact and discuss any issues (get copy of last few meeting minutes if possible)
• Body corporate fees and what is covered
• Sinking fund details (if applicable)

Kind Regards,
[email protected]

 

[alexlee]

mcdeyess, your list is very impessive and it all makes sense, but what are your criteria for accepting or rejecting a property? e.g. for demographics, what is the point when you say 'no, this is not a good area for investment'? Just remember that the perfect IP doesn't exist, and you'll rarely (if ever) find an IP that fits all of your criteria. Especially if you have so many!

Just be careful that you don't over analyse and miss out on opportunities because you're too picky. e.g. even if there are a lot of vacancies in the area, if you can buy the property cheap enough you can rent it out cheaper, and below market rents (assuming the same quality of property) always rent out the fastest. Also, many times it's the macro factors that push a city. I mean, what suburbs in Brisbane and Sydney DIDN'T rise during 2000 - 2003? Or in Perth from 2003 - 2006?

Say you were looking in Brisbane in 2000: the high-level demographics were all there: lots of migration, prices significantly under Sydney. Even the 'rough' suburbs did well, though not as well as some of the 'better' suburbs. Same as Perth in the last couple of years. The point being, you would have been better off just buying more quickly than to spend a year finding the 'perfect' IP.

Sometimes it's better to 'just do it' than be too exhaustive in your checklists. I personally do a top-down approach: decide which city to buy in first, then just have some general criteria (e.g. for Brisbane I would go for stand alone houses or blocks SE from Brisbane all along the train track). The biggest one for me is price v rent. I don't care if it's the most horrible suburb: if I can get the place cheap enough it's worthwhile.
Alex

 

[mcdeyess]

Thanks for your response Alex. I must confess I do feel I am suffering from information overload. I am planning to buy two properties next year, the first in about Feb - March (just how our finance are). I didn't do any research when I bought my first IP, that has gone ok for me. I decided to be much more educated this time and have been researching for about 6 months. It is amazing the more I learn the more I feel I don't know!!!!
My partner agrees with your sentiment that we should do ok with the little bit of knowledge we have and the trends Brisbane is expected to take. My problem is that I am impatient, fortunately my partner is able to temper that.
When early next year comes I will be glad to be able to jump in and make a few offers, to really get into the market. Right now it feel like I am on the sidelines.. "send me in coach"

 

[Tim]

Mcdeyess,

all of that information would be handy, however in terms of making a decision, you could probably do with a much shorter list. I tend to go on a rough top 10 list:

1) Future of the overall area (and historical/expected capital gain)
2) Location of the specific property in relation to services etc
3) Price
4) Rent potential
5) Condition of property
6) Rental demand in area
7) Building type and structure
8) Estimated maintenance expenses and effort
9) Property mangement in the area
10) Gut feel for overall package


Tim

 

[Jindaro]

It is amazing the more I learn the more I feel I don't know!!!!

That reminds me of a quote by Bill Zheng that he uses in his seminars. IT goes something like:

"The more you know, the more you realise you don't know, then the more you know you know, the more you realise you know you don't know"

Yep, gets confusing, but you get the general idea

 

[MarkB]

I agree with the comments by Alex and Tim that a shorter list is the g.o.

But my list is a bit shorter.

1. Good town? (growing population, healthy economy, etc)
2. Good part of that town? (I don't like "bad" areas)
3. Capacity to add value? (subdivisability of land, etc*)
4. Can I afford the estimated holding costs? (taking account of expected rent / maintainance, etc)
5. Compatability with overall strategy / direction / existing portfolio
6. Gut feel.

If you've been operating in a given geographic market for a while, then #1 and #2 are known factors and, imho, the decision only comes down to numbers 3, 4, 5 and 6.

M

*I think that buying properties with development potential is a "must do" for any property investor (particularly if you're buying houses / properties with land). So what if you never intend to build or develop them yourselves? It is the development potential that forces the value up more than "non-developable" properties. Why would anyone purposefully buy forgettable properties in suburbia? Ordinary properties get ordinary results - and no-one wants that.

 

[Tim]

Mark,

good point about buying develop-able property, in terms of it affecting price.

Tim