Ensure Your Next Investment Property Is Future-Proof – Key Due Diligence Steps Every Investor Must Take

The overall due diligence process for building a successful property portfolio involves multiple steps.

1. Strategy (which includes finance and structuring)
2. Market research
3. Sourcing (online and off-market searching)
4. Property due diligence
5. Ongoing property management and strategy review

Today, we’ll cover the property due diligence steps involved in the process.

At this point in the journey, you should have a clear plan and strategy for your next investment purchase, including budgets, yield requirements, purchase entity, etc.

You must have conducted market research to ensure that some potential markets are suitable for your strategy based on healthy economies, good supply and demand dynamics, and, of course, fit within the proposed budget with cashflows that make sense from a net perspective once all expenses, such as council rates, insurance, land tax, etc. are factored in.

Most investors haven’t been thorough enough up to this step – many tend to look at the property first and work backward (if at all).

However, for those who make it to this step, many skip crucial parts of property due diligence and open themselves up to buying properties that will have detractors, which can be detrimental to future demand.

Most investors will do a building and pest inspection – and that’s good. It’s a critical inspection that helps identify defects ranging from minor to structural concerns. This will allow you to make informed decisions about the deal’s feasibility.

Moreover, this is not all that should be looked at – and I’ll share why.

If there are defects in the home – although potentially costly, most can be rectified.

Sometimes, these works, such as bathroom or kitchen repairs, are an opportunity to update or renovate and create equity or increase rental income. In other instances, they can be costly without adding much value (e.g. retaining walls).

The main point here is that defects can be rectified.

The other parts of due diligence are things that cannot be changed and are considered detractors. These aspects can steer potential buyers away from your home in the future, which can affect its growth. Of course, safety concerns also exist.

Let’s take a closer look (not listed in any particular order).

1. Flood risk:

• Unfortunately, large parts of Australia are affected by flooding, and in recent years, we’ve had some major flooding that has been completely life-changing for many.

• Most councils in Australia will have free mapping tools that can be used to see what flood risk has been assigned to certain areas of town, including the potential home you may buy.

• Besides the safety aspect, many insurers will charge higher premiums or don’t offer insurance at all at some addresses.

2. Bushfire risk:

Some areas may be prone to bushfire risk, which should also be factored in. Bushfire mapping is harder to find than flood mapping.

3. Train stations/tracks:

Although public transport is important, some train tracks can be detractors due to noise concerns. Decide on a distance that offers convenience but mitigates noise.

4. Proximity to highway/motorway:

Noise concerns.

5. Public/government housing:

I have nothing against public/social housing (I’m a product of social housing). However, an astute investor or property buyer would want to know the surrounding neighbours, how high of a concentration there is and whether there are any large complexes/blocks nearby. A free tool that can be used is shown in this video.

6. Electrical hazards:

• Major powerlines must not be visible from street views or the backyard.

• Major powerlines must be a minimum of 10 houses away or 300m away.

• Electrical substations must be 300m away from the property.

Road/street checks

We avoid:

• Busy roads due to noise and safety concerns (children can’t play in the front yard or street).

• Streets with more than 2 ways and ones with speed signs showing 60km/h or more.

• If the roundabout is in front of the home.

• If located too close to school pick-up/drop-off streets where traffic can be bad multiple times a day.

• If close to cemeteries or any other industrial/commercial building (e.g., an abattoir), it could be a detractor.

• If located near parking lots, daycares or schools (noise and privacy).

• If the bus stop is right in front of the house (strangers loitering and littering).

Other property checks, in addition to the building and pest inspection, should be for any non-council-approved alternations, such as garage conversions, sheds, patios, etc.

The main point of these due diligence checks is to ensure you choose a strong asset that cannot be faulted based on the above detractors. As a result, it will perform better by maximising the number of people interested in purchasing it should you sell it in the future.

Too often, people focus on attractors and features (which is great), but detractors are frequently overlooked.

A house may be in a strong suburb and have great internal features, but if 7 out of 10 potential buyers lose interest due to its location on a main road, in a flood zone or in a high public housing pocket in town, competition will immediately decrease.

Property investing is about more than finding the perfect house. It’s about finding an asset that will grow in value and attract future buyers or tenants. Diligence in identifying potential detractors ensures your property stands out in a competitive market.

Ready to build a portfolio that performs in any market? Book a clarity call with me at KevTran.com.au to secure your next strategic investment.

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