Due Diligence (DD)

What does due diligence (DD) mean to you? At what point do you think you have done enough research/ analysis to make an investment? Please point me to any other resources if they already exist. I am just listing down some I am thinking of and hope you will share your thoughts.

Macro: keep an eye on the below and ensure it is not just turning to or is hugely negative:
World economy
Australian economy
State/ city economy

Micro:
Location/ suburb economy- new infrastructure/ supermarkets/ hospitals/ schools/ station or continuing normal activity as against negative indicators

Location/ suburb demographics:
- generally what type of owner occupiers or tenants live there? Office goers commuting to CBD, miners, tradies, students at a nearby university
- income demographics to support the expected rent, growth potential

What streets/ locations within the suburb you want to pick - couple of streets away from schools/ uni, super markets, stations, main roads

What streets/ locations within the suburb you want to avoid- on the roads close to or behind schools/ uni, super markets, stations, main roads/ motorway, creeks/ water bodies (flood risk), parks, industries, hospital (noise)

Who is your target tenant or buyer:
- what type of properties are common? If generally independent houses exist with land available, don't plan to build duplexes or units.
- families with younger children - fenced backyard/ pool
- retirees - potential for single level instead of properties with steps, small or no lawns, may be have space for a small garden

Comparables:
How much has a similar property sold for recently on the same or neighbouring streets?
Potential to add value through minor reno or sub-divide

What are your go to websites/ resources for doing DD and for what purpose?

Please share your thoughts.

 

I just do what everyone says here, best double d's i know. isn't that what everyone here does?

 

I go with Cadbury's motto of a glass/cup and a half.

I cup and a half in each hand is the right amount any less and you are not fully ultlising your hands and 2 cups you have to much you it is spilling everywhere.

A good cup and a half... yup

 

You need to understand KISS, pick a couple of areas that you have good knowledge about and build on it and then expand if it doesn't suit.

No point picking Toorak development blocks if your budget is 400k so you really need to understand what budget and what you are looking at buying.

A lot of the stuff you would do if you were completely knew to Australia or the town.

However you get a good sense when you are on the ground driving around a suburb.

Most of mine is spent looking at what is up for sale and what has recently sold but I am not looking at investing in to areas I don't know extensively about already.

 

At some point after a reasonable amount of analysis you need to take all the info on board and then make a decision based on numbers and gut feel. If you are taking more than 2 months to narrow down an area and select a property you are stuck in analysis paralysis.

Focus on two parameters - vacancy rates and yield if you are just buying for cashflow. It is selecting areas that are balanced with reasonable capital growth prospects that becomes tricky. If you are buying in entry-level markets, for this focus on infrastructure and indicators of current and future gentrification.

In terms of getting to know a market, onthehouse is a key resource for me as well as daily alerts on realestate.com.au and domain.com.au. I also like allhomes.com.au as it allows you to quickly determine land frontages, size and shape ( if looking for future development potential ). Also read up on the relevant council planning schemes/codes if you also have development as a consideration for down-stream add-value.

 

Thanks to all those who have replied.

I am a bit disappointed that with all the great minds on the forum, I haven't received a structured list/ thought process to perform the DD.

Any one with any additional thoughts - appreciated.

 

That's because everyone's strategy and approach is a little different, based on their personality/preferences, risk tolerance, current asset-base, income, family situation etc etc etc. What you value/rate in a property might not be valued the same by someone else. Some people might have 5 criteria, others might have 50..

Point is, you need to build your own DD list, and refine it as you mature as an investor. There's plenty of info in these forums already. You just have to get busy with the search function

This forum is a good place to bounce ideas around too, so unless you think you've got a world-beating strategy and don't want to share it, post it or subsequent questions here and I'm sure you'll get a lot of opinions!