The other day, I was drinking a coffee in a local cafe after visiting a mate. I looked across the street and saw a marked off area of land. A property was going to get developed. The security fences had all of these wonderful pictures showing what the property would look like upon completion.
This got me thinking about the sheer amount of work that it takes to get a project to that stage. Just how much due diligence has to go into projects of this size.
In this email, I’d like to talk about some information that you’ll want to seek if you want to get the due diligence process right.
Let’s dive in.
First of all, it’s crucial that you get all the data about occupational health and safety.
This includes all sorts of documents proving that the property won’t endanger anyone involved in it.
For example, you’ll need to check for hazardous materials like asbestos. If they’re present, it can take a ton of money and time to remove the hazard and make a property safe again.
Also, you must check the sewage or drainage on the property,as these can affect its functionality. You’ll need copies of drainage diagrams that clearly outline the drainage and sewer system and give you all the information you need.
Next, you’ll want to pay close attention to tenancy details. Obviously, this goes beyond just knowing if the property is tenanted, and there are many details that you’ll have to figure out.
Tenancy details include things like parking arrangements, permits, approvals, and so on. You must check if the permits and approvals are still applicable and if you’ll have to do any additional work.
The last thing you want to do is buy a property, only to realize that you have to invest more money and effort into getting it up and running.
Of course, you also need to look into rent and outgoings, as well as any opportunity to increase rental returns. Ask for lease details, bank guarantees, statements, and other documents that paint a detailed picture of the financials.
Another thing that you need to scrutinize is fixture inclusions. When you buy a property, you want to be very clear on who owns what. This way, you can see if there are any additional costs that you’ll have down the line.
For example, let’s say that you buy a café and see that the sink and the stove didn’t belong to the vendor. In this case, the owner of the cafe business can take them away, which could be more expense for you to deal with in the future.
Having a full inventory is the only way to confirm that you’re truly getting everything you see.
The next box to check is the building inspection.
You need to engage a professional building inspector to inspect the property. They will provide a full report. Often if any issues come up, you may be able to negotiate a lower price to cover repairs, or ask the vendor to do the work prior to settlement.
As you can see, there’s all sorts of data that you need to collect during the due diligence process. Luckily, you’ll have the help of many people who hold the information you need.
Before you decide whether you should buy a property, make sure to hold all the necessary information in your hands. This way, you’ll know what you’re buying and can avoid many costly surprises.
To learn more about doing your due diligence the right way, sign up for my webinar.