Property Investment Skill No.3 – “Property Due Diligence” | How To Invest In Property / Real Estate

Property Investment Skill No.3 – “Property Due Diligence” | How To Invest In Property / Real Estate


If you want to invest in property, I believe
that there’s 10 keys skills that you need to master. And skill number three is doing
property due diligence. And so, let me show you exactly what you need to do here. Hi my
name’s Tony Law from Your First Four Houses and my channel’s all about helping you achieve
financial freedom through property. If this is your first time here, be sure to subscribe
to the channel and click that bell notification icon so you don’t miss out and then you have
the free content that I give you each and every week. So as I say, I reckon there’s
10 key skill you should become familiar with in order to be a successful property investor
and skill number three is due diligence because property is obviously a really big investment,
isn’t it? You obviously don’t want to discover any problems a bit further down the line or
you also want to be absolutely sure that when you look at any property, that it is absolutely
a deal before you start plowing ahead. Because if you do some really good due diligence,
establish that it’s not a good deal, you want to drop it quickly and move onto that next
property and start doing due diligence on that one. Okay, so let’s imagine that you
found yourself a great little property and the estate agent is telling you, “This is
an absolutely fantastic deal, you gotta buy this now.” The first thing I would have to
say here is that with no disrespect meant to estate agents, obviously, they get paid
if they sell that property. Obviously the seller obviously pays them and so, they are
slightly biased, aren’t they? Whether this is indeed a fantastic deal so, you need to
do your own due diligence and establish for yourself whether it is indeed a really good
deal. So, let’s start off with what is the true
market value? What is it really worth? And I would encourage you to disregard the asking
price here because the truth is, you don’t know who actually set that asking price, did
you? I would suggest that if the estate agent set the asking price, well it’s probably quite
accurate. But if the seller set it, well don’t sellers always want the most amount of money
they can get for that property? We need to look for accurate comparables and in particular,
sold prices, not asking prices. So, go to Rightmove, click here, looking at
house prices and start to find a property or two or three that closely resembles the
one that you’re looking at. Also, ask the agents. Build up some rapport and ask the
agents. Maybe not the one, if it’s being sold through an agent, maybe not the one that’s
actually selling the property but there’s gonna be lots of other agents in the area.
Walk in and ask them. Do you know what? They will know what the accurate price is for that
property in today’s market. Now, you need to consider what is the highest offer that
you would be willing to make on this particular property? And we’ll be going to negotiation,
that is going to be your, “Never go beyond,” figure.
Now, assuming that you’re gonna rent this property out, let’s talk about demand. If
it’s an HMO, you need to go onto spare room and compare rooms for rent to rooms wanted.
If there was a massive oversupply of rooms in that area, well I would be reluctant to
actually invest if it’s going to be an HMO ultimately. You don’t want to really invest
in an area where there’s a massive oversupply of rooms, do you? Even though I totally accept
that if you got the right HMO in the right area and it’s amazing, you will of course
rent that out all day long, it’s still gonna be better in an area where there’s not an
oversupply, of course it is. And whilst you’re there, by the way, look
at what the average room price is. Compare this now with other areas around the area
that you’re looking at, how does it compare? Are there other areas that are close to the
one that you’re looking at where there isn’t an oversupply of rooms? You know, if it’s
a house or a flat for example, on Rightmove, search firstly with the include under offer
box ticked and then search again with it unticked and that way, you can build up an idea of
how much demand is in the area. I had a great little video on this, you might want to check
that out, which will teach you exactly how to do that. Once again, you’re then gonna
want to compare that to areas that are around this one and that video will show you exactly
how to do it. Next, we need to calculate return on investment.
This is obviously calculated as annual profit divided by the cash that you’re investing
in the deal multiplied by 100. That is return on investment. And you need to factor in all
of your costs here and I would encourage you to stress test this at a higher interest rate
so that if and when interest rates do go up, you know you’re still gonna be making some
money and again, you want to compare this with other areas that are around you. Now,
I did another little video on how to look at yield versus return on the investment,
I’d encourage you to check that one out because that’s gonna give you quite a lot of information
as well. I want to move onto now, local area. Ask the
estate agent, they will know all of the areas around the investment property that you’re
actually looking at. Is there a new development that’s going in that’s gonna have an impact
on this price? There may be a new local employer coming into the area, you know, providing
a lot more jobs, which is going to increase demand of course. Is there maybe a crime ridden
estate hidden around the back somewhere that maybe you’re not aware of? Well, the estate
agent will of course be aware of it. I’d also encourage you to view this property at different
times of the day, different times of the evening, at the weekends. This should really fall in
part of your basic due diligence. And if you’re not familiar with it, check out streetcheck.co.uk.
It’s a fantastic resource, you can learn about housing in the area, the type of people, employment
and even crime. I did a great little video on that, you might want to check that out.
In my online property master class, I share my full due diligence process so you can quickly
work out when a property is in fact, a fantastic deal. And so, if you’d like to book a 10 minute
phone call with me to find out a little bit more about this course and how it might benefit
you, just click on the link here and I’ll be very happy to answer any questions you
may have.

Comments

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    fish and banana

    Hey Tony, thanks for the video; i need your advice on something and i'm not able to find resources online. can you help me find out how i can setup a Holding and spv to strategies managing property portfolios ? i want to invest in a buy-to-let property but use a holding/spv structure as opposed to a private purchase. Thanks.

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    MrShanky91

    Such a useful video! The practical examples really drive home the points you are making. Most real-estate videos only talk about things conceptually but your examples of tools and how to use them really increases the utility of this content. Keep up the great work!

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    Neil Britt

    Another good video mate. As a budding property investor, they either give me information I didn't know, or give me a warm feeling that I'm already doing what you advise. I'm just about to put an offer in for a property and your first words "Ignore the asking price" will give me a lot more confidence in putting in a lot lower offer. Cheers.

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    Jermain Smith

    Hi Tony. Thank you for your wisdom on this I truly get the sense that your masterclass would be of great benefit to me in the near future. I would like to ask a question – if I may? When evaluating a house price and carrying out the due diligence – the house price was bought significantly higher than what it is being sold for now 12 years later, even though the property has had vast improvements, from the images. How would one analyse if this is a positive factor? Thank you in advance.

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    iKnowGrime

    Is there any way I can get an email address or phone number to contact you for some of your knowledge of getting into the property investment please Tony?

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