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Due Diligence

Diving into real estate investing? Remember, the devil’s in the details.

It’s tempting to take the fast lane, to take every word from the selling agent as the holy truth. But here’s the thing: assuming can be your first big mistake.

Every piece of information, every number handed to you, needs a second look. Why? Because thorough due diligence doesn’t just ease your stress; it boosts your confidence and sharpens your negotiation skills. Your analysis needs to outshine even the lender’s valuation. That’s your ticket to a solid investment.

But beware the trap of analysis paralysis. Starting with a bird’s-eye view can save you from drowning in the trivial details.

It’s easy to get hung up on the small stuff, obsess over imperfections, and miss out on great opportunities. Remember, no property will tick all the boxes. The goal? To sift through enough data to spot a worthwhile investment. Whether it’s a cozy $500,000 home or a grand $15 million estate, the fundamentals of due diligence remain unchanged.

And if you’re just stepping into the game, here’s a pro tip: specialize. Get to know one type of property inside and out. Each category has its quirks, and mastering them can significantly up your chances of success.

What you need to find out:

The journey begins with gathering crucial facts to decide whether a property makes it to your shortlist for a deeper dive. If initial checks are promising, you’re set for a more intensive investigation. In certain cases, like when a contract hinges on inspection and due diligence, deeper digging can wait. But, if you’re eyeing an auction purchase or a non-conditional contract, you’ve got to roll up your sleeves and dive deep from the get-go.

Now, bombarding the sales agent with questions right off the bat might not be the best strategy. Pace yourself. So ask these queries strategically to avoid scaring them off:

How long has the property been on the market?
Why is the vendor selling the property?
How many offers have you received?
Could you provide some comparable sales of similar properties?
Would the seller prefer a short or longer settlement?
Are there similar properties you’ll be listing soon in the area?
What’s the property’s land tax value?
Is the tenant keeping up with rent and other expenses?
Has the landlord had to reduce the rent at any point?
How long has the tenant rented the property?
When does the tenant’s lease expire?
Is the rent in line with market rates?
What have the rents done the last 1-2 years? (What’s the trend)
Can you provide a few similar comparable rentals in the area?
Future Development Plans: Are there any upcoming developments in the area that could affect the property’s value or livability?
Zoning: What are the zoning regulations for the area? Could they impact the property or future development plans?
Natural Disaster Risk: Is the property in a high-risk area for flooding or in a high risk fire zone? This could affect insurance premiums and risk levels.

The above would be the minimum that you would ask the selling agent but being buyers agents, we would also find out the following:

Heritage building/house character overlays
Sewerage, electrical and drainage overlays
Biodiversity/ecological impacts
Waterways/wetlands corridors
Overland Flooding and a whole lot more

In your quest for the perfect investment property, it’s all about striking the right balance. You want to dig deep enough to ensure you’re making a sound decision but not get so lost in the details that you miss out on a good opportunity. Specializing in a particular type of property can give you the edge, allowing you to navigate its complexities with greater ease.

Your initial questions are just the beginning, laying the groundwork for a more detailed analysis. They’re your first filter, helping you decide whether to proceed or walk away. As you move forward, keep in mind that your due diligence is a powerful tool. It’s your roadmap to making informed decisions, negotiating from a position of strength, and ultimately, securing a property that meets your investment goals. With the right approach, the world of real estate is yours to conquer.

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