Due Diligence

What is Due Diligence?

For someone new to property or business ventures, it can be a challenge to work out exactly what due diligence is, let alone what to do to perform it. The tasks involved can be time-consuming and comprehensive depending on the venture, so I’ll focus here on what’s essential for property investments.

Think of it in terms of an investigation.

Carrying out Due Diligence

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Due diligence tasks

Due diligence consists of investigating a business or a person that you are about to become involved with before signing on the dotted line. In terms of property investing, you are investigating the house and its suitability for your purpose. Consider the following:

  • How does the price compare with other properties in the area?
  • If you plan to rent it out, do the type of tenants you want already live in this area?
  • How many similar properties are already available to let? Is there an over- or under-supply? If you are new to this location, how much do you know about the environment, services, rental rates, type of people who live there, etc?
  • How much work needs to be done to the property – and how much will it cost – before you can rent it out or sell it on (depending on your strategy)?
  • Are there any hidden and potentially nasty problems? Look beyond what you can easily see …
  • Are there any major developments planned or in the offing that are likely to be detrimental to this property?
  • How much cashflow can you realistically expect from renting out or selling?
  • If you’re working with a company or person you have never worked with before, how much do you know about their background? Do you have any recommendations or testimonials?

This is just a selection of the type of issues to look for in addition to the ones carried out as standard during purchase. For example, local searches form part of the due diligence.

Desk research tools

Experienced property investors tend to have their own list of tasks to carry out. Sometimes it is crucial to get out and about on foot, but there is some desk research to do too. Some of the online tools that I have found particularly useful include:

And there are some more suggestions covering a 5-minute due diligence regime on Property Tribes.

Happy investigating!

This entry was posted in Blog and tagged , , by Jayne. Bookmark the permalink.
Jayne Owen is a property investor and landlord in Wales, UK, editor and review on propertybookshop.com, and writer at Your Property Network magazine. Find out more about her at www.mozaique.co.uk.

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