Due Diligence - Share your DD Process

Since I am lot junior to many seasoned investors here, I would like to see how the real experts go through DD process and what tools they are using.

This is my DD process (which is far from optimal at the moment and hence advice needed)

1. Finding a target suburb (I am using a combination of DSR data plus general property cycle information from different publicly available data sources). This is actually where most time gets spent as most information sources have conflicting information. I find DSR data a bit better than other sources but find the actual DSR score a bit misleading so I just use their historical graphs through the free option. I also use Corelogic paid subscription and data from Commbank Mywealth subscription.
2. Once a suburb is found, I then try to double check all the assumptions (days on the market, average vendor discount etc.) through whatever other data I can find.
3. Last step in finding target suburbs looking at the surrounding suburbs and often I end up finding a better suburb right next to initial suburb I was targeting.
4. I look at the available properties on the market and the usual 'running them through a checklist' process. In about a month or so, I am able to find a property which fits the objectives.

Tools used:
Corelogic (very useful in identifying property history and finding comparables)
RE Websites (mostly realestate.com.au)
DSR data site

Biases/Preferences

1. Investing within 100 KM of where I live so that's just Sydney and surrounds. I would like to overcome this.
2. Strictly 5%+ gross returns (it's getting harder but still possible)
3. Close to schools & transport as much as possible
4. Suburbs on some sort of future planning or gentrification path
5. Staying away from trouble demographics as much as possible
6. Suburbs expected to achieve 20%+ CG in a year or so from settlement

I am currently running this exercise for the 5th time now. 3 personal purchases, 1 for a business partner and while I have had good returns so far, this is a very tedious process to follow so I am not sure if I will be able to keep doing this for my 20th or 30th property.

How about others? What processes/tools do you follow?

 

This has been done to death, do a search

 

@standtall great post mate. I like everything on there except the " Investing within 100 KM of where I live", but other than that I think its looking really thorough and its obviously working well for you.

I tend to do my DD in a process similar to this. The process is actually not as 'neat' as I'll type it below but for clarity sake I'll try to keep it neat.

Goal Due Diligence
1. Before each purchase determine where I am in my portfolio and what the goal is for the next purchase. Is it a CG buy, CF buy, Neutral buy.
2. What strategy do I intend to employ for the purchase. B&H, Reno, Develop or a mixture
3. Ensure I have all my finance ready, and I know exactly my budget and how far I can go. Get refinancing of equity consolidated, pre approvals done, give lawyer and anyone else on the team a heads up that we're about to go into battle. Then:

State Due Diligence
1.Which states do I think are at the optimal buying segment of the property clock, (7-9 o'clock mostly for me). I use HTW reports, Core Logic Capital Market Reports, Terry Ryder reports, any other on line reports, Property magazines and the media (to gauge sentiment mostly, and of course chatter on the forum as well as engaging with my peers for property market discussion. I try to make the best choice based on a mixture of all those factors. Choosing the state is a big decision for me. Once chosen, then:

Suburb Due Diligence
1. Determine how far I want to draw a radius around my map from the CBD. Is it 5,10,15, 20km etc. Usually what will determine how far I go from the CBD is the particular state i'm looking at, the strategy i'm employing and any specific opportunities in areas that may be worthwhile exploring.

2. Choose a few suburbs that meet my buying criteria. I look for value suburbs, eg suburbs that are cheaper than their neighbours but share most of the same fundamentals to make them grow which is only a matter of time, the 'ripple effect'. Use websites like REA, Domain and even property magazines might alert you to a suburb in your chosen rough area that you can look at and do further DD comparing prices of dwellings to try and find that 'value surbur' or two. Of course make sure the suburbs have the usual good growth drivers like transport, infrastructure, amenities, cafes, hospitals, trendy hubs etc. Once I've narrowed it down to say 2 suburbs I then look at historical CG, SOM, Discounting Rate, Vacancy Rates, Supply/Demand etc. Property magazines and on line sites have all this. I make sure I use at least 2-3 sources to corroborate the data for further reliability.

Demographic Due Diligence:

1.Research what the demographic is, and what they want, in your chosen area. Is it detached housing that is most prevalent? Villas? How many bedrooms is most common? Most wanted or common size of dwelling and land (so you don't buy a 400sqm home in an area that really values 500+sqm for example), How close to transport? Families or singles? Students? etc Any specific nationality in the area that may influence your purchase?

Dwelling Due Diligence
1. When I know exactly what I am looking for after I have my list, I troll all real estate websites and look for stock that fits my description. I also call probably 10 or more REAs in the area to tell them what i'm looking for, i'm preapproved and ready to buy right now and ask that they alert me to anything that they think i might be interested in. Having 15 ppl looking for me is better than just 1 person. I also first make sure any dwelling I look at is not next to any major power poles, cemeteries, very busy main streets, noisy kindergartens, not in flood areas, bush fire areas, high crime rate areas etc.

2. When I have 'acceptable stock' in my sight, I will then use RP Data to do what I call 'Vendor Due Diligence'. See when it was bought, who bought it, for how much, etc etc. I want to know as much of the story as i can to try and put a picture together very fast to basically try and determine just how motivated the vendor might be. Really this only should take 20 mins. I then call the agent and discuss with him the property I am interested in to try and learn from him as much as I can. (i'll leave it at that for the agent because this is getting too long already).

Sheet! This is waaay too long I gotta cut it short. Basically from there its a negotiation process. I try to find many properties that meet my criteria and put offers on all of them trying has hard as possible to buy BMV and create equity on the way in and also try to buy on favourable terms eg delayed settlement, building and pest clause (a negotiation tool in its self), Subject to finance, etc. Having said that it depends on the deal. If its in my interest to go 66w then I will.

Apologies for such a long and boring post...


Just my 2 cents...

 

Anything but boring mate .. I thought I was thorough but you are on an entirely different level

I have a few questions for you, I will reply in full detail later in the nights (after kids go to sleep).

Cheers

 

NP mate. It does sound long winded and convoluted but really everything above doesn't take me longer than a week. Then I can make offers on property all day. Its the initial DD that takes most of the time. This is what works for me and i'm sure there are a million other ways to do it

 

@Leo2413 i hope you copied that from somewhere and didn't waste your time

 

hehe no... I just started typing and my fingers wouldn't stop. its all good

 

@Leo2413 I'm sure you have honed your DD over the years and just reading that makes me feel I have to go back to the class

 

Hi @RedMarty,

What works for one may be terrible for someone else mate. Although it looks like my DD process is endless, in reality many of those steps are completed really quickly. DD is important but at the same time don't let it come to an 'analysis paralysis' situation either mate.

 

Do you have an excel sheet with all the formulas? If no create one for yourself

 

Your 2 cents are worth millions to us newbies.

 

Happy to contribute

 

Thanks mate ..

I am also a newbie compared to @Leo2413

 

Bahaha

 

No analysis paralysis here

More like opening my eyes and re-setting! Appreciate that