Purchasing an investment property only to find out it has serious issues that will lessen the profit return or even put you in debt is everyone’s nightmare. Conducting a due diligence thoroughly will not only help you avoid making a bad purchase, but also place you in a stronger negotiating position.
Firstly, look at the contract of sale. This will contain information about what the vendor is selling you. The standard inclusions will vary from State to State. Where information is excluded, you should seek it out yourself or request that the vendor provide it as a special condition of the contract. What is provided to you by the vendor should be checked for accuracy. Keep in mind factors that can affect the property’s value and tenant appeal.
The due diligence check list:
Land survey – Ideally this would be included, but it many cases it won’t. A land survey is particularly important if you are intending to subdivide or develop. Lenders also often require an up to date survey.
How to get one: You can source one from the state land authority or you may need to appoint a surveyor to undertake one. Even if you are provided with a survey, you’ll need to check that it’s consistent with the actual property and you still may need to appoint a surveyor.
What the survey will provide:
- The dimensions of the land
- The location of the property in relation to other houses and cross streets
- Identification of any easements which may permit a person (usually a government authority) to use your land for running electrical mains or drainage. Easements can affect how and where you build on that land.
- Identification of any restrictive covenants which may prevent you from using the land in a particular way, such as not building above a certain height
Sewer plan – this shows the location of any sewer mains and the property’s connection to them. As with electrical and drainage easements, if your property contains a sewer main, it may affect your use of that land, potentially preventing you from building on it or near it.
How to get one: Your local water authority will be able to provide you with information on your water and sewerage connections and a sewer plan (for a small fee).
Zoning or planning certificate – Zoning information may be included in the contract for sale in the form of a zoning certificate or as part of the Certificate of Title (depending on which State you’re in). It will inform you of what the property can be used for, what planning and development regulations apply and whether it has subdivision potential.
How to get one: Your State land authority or local council will be able to provide you with an official record of the property’s zoning for a fee. Local planning and development documentation – in some States, the vendor will be obligated to provide information from the local council indicating whether any works are planned on adjoining properties, local roads etc which could affect the use and value of the property. It’s also worth checking with the vendor or agent if there have been any problems with the neighbours.
How to get this: The local council will be able to provide you with information pertaining to civil development plans and building approvals in your area.
Building inspection and termite reports – You must ensure that the building’s structure is sound and not affected by termites if the property is located in a problem area. If buying a strata property, providing this information will be the responsibility of the owners corporation.
How to get this: You may be able to request a building inspection report from the vendor using your chosen licensed builder or architect as a special condition of the contract. Alternatively, you can undertake this yourself with your chosen person.
A list of fittings and chattels included with the property – this might seem obvious, but sometimes what the buyer expects and what the seller is offering can vary. Items that can require clarification include carpets, blinds, certain appliances, garden sheds etc. If in any doubt, make sure you check what fixtures are and aren’t included and have these clearly stipulated in the contract.
Additional considerations for strata properties – If you’re looking to buy a property under a strata scheme there is some additional due diligence to be done. You’ll need to find out what strata levies you’ll be required to pay, if the financial position of the strata company is solid, and assess its ability to maintain the property and its building insurance policy.
How to get this: You’ll be able to request all this information from the strata company (owners corporation).
Have you ever missed anything in a due diligence that you regretted?