You’ve got the cash, you’ve got the opportunity; it’s an exciting time.
The investment property of your dreams is just there, waiting for you. So what’s standing in your way?
You may have discovered that you wont need a mortgage to realise your dream of, say, buying a house at auction and renovating it, but let me just say; slow down for a second.
When it’s your money at stake, you don’t want to take a chance on an investment without checking it out first. You want some assurance that your investment will pay off, right?
Due diligence is the way to get that assurance for yourself. As an experienced property buyer, I won’t move on an investment without it. In this blog post, I’ve explained why as well as providing key tips on the relevant steps to take.
What is due diligence in property investment?
You’ll probably have heard of the term already, but not so much what it involves, so I’m happy to explain. In property investment, due diligence is the reasonable steps an investor might take before committing on an investment property.
These steps involve understanding the property’s true commercial value and assessing any risks involved. Here’s how you can do that.
Establish your strategy
When you’re a sole investor looking to purchase property, you’ll need to decide on your strategy for the property. Are you intending to purchase a buy to let or buy to flip, is your priority short-term cash-flow or long-term growth?
As you might imagine, changing a strategy half-way through a venture because you’ve discovered that it’s not a viable option could be time-consuming and expensive, so opt for a strategy that you can see through to the end.
Compare price vs value
Researching sold property listings in the same street and surrounding areas will help to assess whether your target property is a good price. You’re looking for a property that’s below market value.
Why? Because paying more will diminish your investment yield. Your aim is to add as much value to your property as possible, so it makes sense to start from the lowest possible price.
Research your area
A key aspect of due diligence is to really look at the area where you want to buy. You’ll want to establish where the best properties are that fit with your strategy, or if there’s anything that might adversely affect it.
For example,If you are looking to purchase and sell a starter home, does the area attract first time buyers or is it better suited to rentals? Has the local market experienced any downturns recently?
PSST! Don’t just look at what’s out there right now, investigate any future developments too.
Assess rental demand
You’ll want to establish if there’s sufficient rental demand and what is the right kind of property in terms of size, condition and style. It’s very important when adding to a buy-to-let portfolio that you consider all these elements.
You’ll also want to ensure that the rental yield is sufficient to justify investment. An attractive net yield should always be above the baseline you set yourself, say, 5%, to allow for any unexpected contingencies above the normal property costs.
All a bit much? Don’t worry, help is at hand!
Advice from an experienced property investor
As you can see, there’s a lot to consider when undertaking due diligence. If you’re time poor and thinking that it’s all a tad overwhelming, there are plenty of agencies that are willing to help.
Getting the right agency can make a huge difference. You’ll have an ally in place who will help ensure that your strategy, area and price all work for you to produce the kind of net yield you need.
Should you do due diligence on those doing due diligence? Absolutely! Have a look at some property buyer’s websites to get a feel for what’s out there, and take your time to look for a trustworthy property buyer whose ethos and values appeal to you.
A good property buyer will offer a free, no-strings consultation and will take the time to examine your property investment requirements. They will take care of your due diligence requirements as a matter of course.
In summary…
If you’ve made it this far, thanks for taking the time to read. I hope I’ve managed to shed some more light on due diligence in property investment.
If, after reading this, you’ve realised that you’re not sure what the best way forward might be, it’s definitely worth contacting a reputable property buyer as they can help you decide what to do based on your requirements.
Sometimes confusion reigns. I understand. If you’re looking for some free, no-strings advice, feel free to get in touch with me – we can put our heads together and make the pieces of the jigsaw fit for you when it comes to your choice in investment.
After all, you can’t go wrong when it comes to bricks and mortar!
Good luck.
Written by John Nicol
Founder, Ascension Property Investments
Get in touch on 01383 603091 or email me via [email protected]/
