Due Diligence
1 July 08Prior to signing a contract to secure the property In the property market, in fact in all things we embark upon in life, it is necessary to perform some degree of investigation.
Due diligence is the term given to enquiry and investigations made on a particular project, which in turn provides sufficient information enabling you to make an informed decision.
Some of us find it necessary to obtain every detail of information and tend to analyse all aspects. This type of person is always very thorough, however can tend to suffer from ANALYSIS PARALYSIS.
When one spends too much time in the research phase, they often miss out on the deal. It is important to recognise when enough is enough for you to make an educated and informed decision. On the other hand, little or no due diligence can have detrimental effects.
Why do we need due diligence?
Sadly, I have witnessed the misfortune of others who have suffered significant losses through bad investment decisions in all types of investments. In many cases the decision to invest may not have been taken, had a little due diligence been conducted.
So where do you start with your Due Diligence?
You have found a property and you need to know what questions you should ask of the listing agent. ·
I find it useful to use an enquiry worksheet when making initial enquiries. Stay alert, some answers may lead you to further investigation.
Make as many notes as you can on your enquiry sheet. Obviously, the figures themselves will play an important part in your analysis.
You may wish to fax or email the enquiry sheet to the agent.
However, conversing with the agent yourself enables you to build a rapport. This can be invaluable for your future investing. He is more likely to keep you advised of not only new property listings before they become advertised, but also details of what is going on in the town. ·
If the property warrants any more of your time, you may want to follow-up those initial enquiries with a professional in the relevant field.
Below is a guide to whom you should enquire:
- Permissible uses of the property (both residential & commercial) Local Authority/Council. ·
- Minimum block sizes for subdivisions- Town Planning Department at local authority. ·
- Current zoning - Town Planning Department at local authority.
- Zoning changes - Town Planning Department at local authority. ·
- Age of the building Building Department at local authority. ·
- Permissible extensions/renovations Building Department at local authority, registered builder, architect.
- Electrical wiring qualified electrician.
- Re-alignment of boundaries local authority, surveyor, State Department of Land.
Checking out the Town
Getting a feel for the town you are investigating is an important step in your due diligence process. · Call the local tourist information bureau and have a chat about what the town has to offer. This can be very informative. · Ask questions about the population, the main industry and generally what is happening around the town. · Other sources may be the local small business club, local property investment club, or even some sporting clubs in the area. · Talk to the locals where possible . . . they love to talk about their town. Other statistics you may wish to know ·
- Median house prices
Average rentals (can be found on the internet by entering the towns name, or in property investment magazines (readily available at your newsagent).
So what now?
At this point, you should take a look at what it will cost you financially to acquire the property. So what is the next step?
Now that you have progressed through to this stage of your due diligence, you need to ask yourself ·
Is this a good investment? and just as importantly · Is this good investment for my portfolio right now? If you still have interest in the property, now is the time to secure it with a contract for your further consideration. I mean by this . . . secure the property with a Conditional Contractual Agreement. But first, you need to devise your personal plan, set up your structure and practice your due diligence by investigating as many properties as you can.
After signing:
The most common way to secure a property is for you, the buyer, to enter into a Conditional Contract of Sale with the seller. If you have conducted your initial due diligence on a property and would like to further investigate any aspect (such as whether the Council will allow you to convert the property to a dual occupancy), you would have a clause inserted into the Special Conditions Section of the Contract Caution because every deal will be different in some way and your intentions for that property may be vary along the way, it is important to obtain independent legal advice from a professional to be sure that your specific requirements are met.
Due Diligence by your Conveyancer or Solicitor ·
Your investigations prior to entering into a Contract and your continuing enquiries are not the only research done in the process of acquiring property. Your Conveyancer or Solicitor will also attend to certain searches in the course of the work they perform for you. ·
Make it your business to discuss with your Conveyancer/Solicitor what searches they conduct routinely, the fees involved and if they would suggest any other enquiries relevant to the property you have contracted to buy and why. ·
Searches may vary slightly from state to state