I am guilty of this one myself. You find a property it all looks good, you buy it and then “OH NO!”
As an investor there are 3 different types of due dilgence you should be doing.
#1 Due diligence on the property
This is generally what most people think of when doing due diligence. I.e get builders report, get a valuation done, check the LIM report, get the lawyer to check the certificate of title. Basically checking the properties structure is sound and your house is not going to fall down around you.
#2 Due diligence on the numbers
Many investors check the numbers, but how many actually confirm that the numbers are true? Sure the Real Estate Agent says the house could be rented for $450pw but get a few rental appraisals done by some property managers. Also be aware that some rental assesments will be done from a computer in the office without actually ever looking at the property. Check to ensure that your reno costs will stack up (do quotes include GST?). How much will the property be worth once renovated?
Have you included vacancy rates in your equations?
What if rent decreased or interest rates increased?
Are the tenants really paying that much rent?
#3 Due diligence on the deal
Remember we should be buying property to suit out strategy, not working out a strategy to suit the deal. Does the property suit your deal profile? How will this property help you achieve your goals? Are you buying on numbers or emotion? You should know how much money you are going to make from the deal before you even buy the property.