If you never, ever, ever, EVER learned another thing about investing in property, what I’m about to share with you today will be the most important thing you will ever learn about investing in property.And the amazing thing is I only plan on sharing with you two “magic” investing words today.
These two magic words will unlock opportunities where previously there were none, and they will keep you away from “lemon” deals where you’ll be lucky if you only lose your shirt!
“Don’t keep me in suspense” I hear you say.
“What are these two magic words which every property investor should know?”
They are: Due Diligence!
Hopefully you already know a bit about it. If not, then it’s a word you’ve probably heard your accountant or solicitor use.
Let me give you a simple explanation on what Due Diligence is all about…
Due Diligence is all about finding out the facts about a property, trying to uncover any potentially disastrous information about the property which could turn a good deal into bad, and evaluating the investment to make sure all the numbers stack up. That’s a simple version of due diligence, you can find out more with some simple online research as well.
(Wikipedia has an entry on Due Diligence if you want more detailed information – but it reads like it’s been written by a lawyer and is a bit difficult to understand in parts.)
When it comes to due diligence on an investment property, there are two things you want to look at.
- The physical state of the property
- The numbers behind the deal
- The Physical Nature Of The Property
When you’re evaluating the physical nature of the property, you’re mainly looking at the things which could go break and cost you money down the track, as well as looking at the property for opportunities to quickly improve its value.
This is what you’re looking at when you’re doing a property inspection with a real estate agent, or going through the building inspection and pest inspection. (I know that you never buy a property without these!
The Numbers Behind The Property
On the other hand, when you’re numbers on the property, you’ll need to get out your calculator and start doing the figures.
Mainly you want to add up all of the costs you can expect to pay to own the property (making sure you don’t overlook any important costs, like insurance or council rates – and making allowances for repairs and maintenance etc).