Forums / Property Investing / Help Needed! / If you want to be a successful investor learn to do due diligence

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  • Profile photo of Nigel KibelNigel Kibel
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    For most people an investment property will be at least the second most expensive purchase that they will make. Then why do people buy property with less research than buying a blu ray player. In fact some of the people I have spoken to do a lot  more research on their blu ray players.

    Normally these people tell me the following

    I was misled

    They told me at the seminar that the property would quadruple in price,, now it worth less than I paid for it.

    They told me it was under market and at was $100,000 more the market, I hate the crooks

    I brought what I was told was a great property in America only to find out it was in a gang ridden slum in Detroit.

    Don't get me wrong I hate to see people who have lost money and have been cheated  especially by people who claim they are their to help.

    However if you lose money because you have not done your due diligence in most cases you largely have yourself to blame.

    So what can you do

    As a starting point go online and search for similar properties on line. That will at least give you an idea of the value of the property. People often ask me what do I do. Well firstly I use the internet for research, not only do I look at properties on line I read as much about the area as I can find. I then go to the area and look at everything on the market. For example when in 2004 I started buying properties in Christchurch New Zealand I spent a great deal of time working out the ideal suburbs then when I went there I sent three days inspecting 36 properties that's what you have to do its not rocket science, but it does require work.

    If its in Australia go and look at the market yourself. The price of a flight and accommodation are a tiny investment compared to losing money in a dud investment. Other things can include paying for a number of online services to assist

    However nothing beats using your eyes to inspect properties. Then if you are still uncertain pay for a sworn bank valuation  if it costs you $300 again if it turns out that its $50,000 over priced its a small price today.

    I will also write about doing due diligence in the United States.

    Remember property investment can be very rewarding but like anything it still requires effort on your part to gain the knowledge and educate yourself.

    Regards

    Nigel Kibel

    http://www.propertyknowhow.com.au

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    Profile photo of Paul B.Paul B.
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    Thanks for the advice Nigel. As a newbie to property investment I am reluctant to increase my scope to beyond my local region. I feel that growing up in the Hunter Region gives me considerable advantage to an outsider looking to invest in the Region. Its almost like a sixth sense of knowing the desirable suburbs and areas poised for significant capital investment. I think this would be extremely hard to match by looking at statistics, suburb profiles etc

    How did you overcome the uncertainty of buying in a foreign town/state/country? What are the indicators you look for in an area you are unfamiliar with?

    Profile photo of Nigel KibelNigel Kibel
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    Hi Paul

    It all comes down to research, the problem when you are only dealing in your own back garden is you are tied into that market whether it be good bad or indifferent. As an investor  you are not tied to any city or location because you are not going to live in the Property.  <moderator: delete advertising>

    Now I have been doing this for a long time so it would take me less time than you, however it depends on how seriously you want to do this and what sort of time you have. Now I know a lot of people are time poor however if you are going to invest you need to spend your money where you are going to get your best return and yes you do need to do some due diligence because it is your money that you are spending.

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    Profile photo of JothamJotham
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    Hi Nigel

    Do you think employing a buyers agent is great idea? as they say they are up to date with market research, also they do not get any commission on there recommendation, they only get paid by you so, a not bias opinion.

    Are they as reliable as generally say? are they really worth a pretty penny?

    Profile photo of Nigel KibelNigel Kibel
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    It really depends on who the buyers agent is. I think that if you get a good one they are worth the weight in  gold. I have done a lot of buyers advocate work over the years, both in Australia and the United States.

    Again you need to do your own due diligence on the advocate to make sure that they will deliver a worthwhile service

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    Profile photo of CatalystCatalyst
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    haha. That is so true. I bought a villa in my lunch hour once. Looked at it, went to the office, signed the paperwork. It DID have a 5 day cooling off period.

    I spent weeks agonising over buying a car.

    Profile photo of TerrywTerryw
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    ha ha funny people are like that. I knew a guy who spend about 4 hours ringing around to buy a camera and to save a few $$$. Then he went out to buy a juice shop and did not DD at all and just paid the advertising price too. Within months the business had failed.

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    Profile photo of Nigel KibelNigel Kibel
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    I think the important point is that most people who have a bad experience with an investment property have done so because they have not carried out enough due diligence. How often do people buy an overpriced property through a marketing company and do so because the salesman said it would be a good investment.

    It is a matter of using common sense. Today even if you are buying interstate the internet will at least allow you to look at prices in the area you are looking to buy in. It does not take a lot of effort to do this. As mentioned you should travel and see the property in person and the area. Do not rely on photos of the property, they often do not tell the whole story. How often when traveling on holidays do you see an Olympic swimming pool in a photo to find that it was a duck pond on arrival.

    If you do not do any due diligence you have to take responsibility.

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    Profile photo of TerrywTerryw
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    Nigel, that is exactly what happened with me. I've done one property deal where I lost money and it was because I didn't do any DD. Just let a friend build a project for me which blew out with costs and time.

    Good analogy about the holiday brochures/websites too – much different when you actually get there.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
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    Profile photo of DubstepDubstep
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    Profile photo of Paul B.Paul B.
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    Hahaha awesome dubstep

    Profile photo of BigCubezBigCubez
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    Haha, view things from a different perspective.

    Profile photo of CatalystCatalyst
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    Awesome example of the power of photography.

    Nigel I totally agree. But in my defence I did know the area very well and I knew if I didn't buy it on the spot it would be gone as it was being sold by an agent that had no idea. One in the same complex sold for $20K more the next week and was not in as good condition. It was a great buy and has great equity as well as being CF neutral.

    So even though I bought quickly DD was done.

    Profile photo of Nigel KibelNigel Kibel
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    Hi Catalyst

    It does come down to experience it sounds like you did do your due diligence. Sometimes you can do all the research and things can still go wrong, that to a degree is the nature of property.

    But I come across people everyday who go to a seminar and commit to buy a property off the plan without doing any due diligence. These people are often sold on the basis of saving on tax. I have seen people buy hotel suites and student accommodation on that basis. 

    Dont even get me started on America were people buy off the interest or even ebay. However thats another post.

    What I am saying is the more due diligence you do the less chance of you making a serious mistake.

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    Profile photo of Nigel KibelNigel Kibel
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    Here is a good site to help you with due diligence, it provides addresses and full brochures together with sold prices and best of all its free

    http://house.ksou.cn/

    Nigel Kibel | Property Know How
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    Profile photo of minds-eyeminds-eye
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    Excellent link Nigel – Thanks!

    Profile photo of PEACHYPEACHY
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    I have always done my due diligence…researching areas, sold prices, demographics, vacancy rates, visiting the area, working out the good suburbs from the bad, talking to the locals, visiting property after property and yet I have just pulled myself out of bed after having a mini break down.

    I gave myself half an hour to cry and be frustrated and ponder that I may have ruined my husband's life after he trusted me to make it better and different to those around us. I had ten minutes or so where I pitied myself for being really unlucky…massive water leaks under the 3rd IP, roof flooded in 2nd IP, equity trapped in the first IP through a JV, property sitting empty for two periods of four weeks in just 7 month of ownership etc etc…poor me.

    Then even worse.  I realized I am a 'dumb investor', something Freckle talked about on another post. It has percolated around in my mind ever since reading it. 'That's me!'. So next I really cried. I wanted to be the person that came from nothing and ended up a success. Instead I realized I suck at the thing I love the second most (after the family of course)…property investing.

    Suddenly half an hour was up and it was time for the tears to go, the negativity to be dusted off and let all the little things I read on here start to filter back into my head. If I give up now then I will definitely be ordinary. If I look at what has happened as me being unlucky I will not learn from my mistakes and work out how to do it right. If I continue to do the same due diligence as I have done previously, then I will continue to get the results I am getting now; no growth, no equity, and worst of all no tenants.

    I can change it all moving forward! Phew…back in the saddle

    Profile photo of Jacqui MiddletonJacqui Middleton
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    PEACHY wrote:

    I realized I suck at the thing I love the second most (after the family of course)…property investing.

    If I continue to do the same due diligence as I have done previously, then I will continue to get the results I am getting now; no growth, no equity, and worst of all no tenants.

    Wow Peachy what a post!  How come you've got no growth and no tenants?  May I ask where you have invested, and what type of dwellings they are?  eg studio apartment? 1 bedder unit?  3 bedroom house?

    Jacqui Middleton | Middleton Buyers Advocates
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    Profile photo of Nigel KibelNigel Kibel
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    Hi Peachy

    We all make mistakes and all represent who we become by those mistakes. The thing that is important is we learn from them. I remember years ago when I went into business in a real estate firm I sold 3 properties I own in a very up market area. Now I have brought and sold many many properties since but if I dwelled on the properties I sold and though about how many mil;lion I threw away in equity I would rip my hair out

    However who we are today is made up from our successes and life sessions that we have been through. So the important thing to do is don't look back  and learn from your life lessons.

    Finally take a look at the issues you are having, if the properties don't work then don't be afraid to get rid of them. You need to consider opportunity costs in other words holding on to these properties might be holding you back. 

    Nigel Kibel | Property Know How
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    Profile photo of PEACHYPEACHY
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    Sure…sorry needed to vent! Don't mean to hijack the post but my answers are not short to give you a bigger picture. I am stuffing up my due diligence somewhere I just need to work out where!

    IP 1: Freshwater NSW (2 bedroom unit)

    We have made $90k in equity since it was purchased in 2007 which is not anything to write home about and because it's a JV with my brother using the equity is more tricky than it is worth – I have talked to Richard about it last year. Tenants are not a problem here but the yield is only 5.2% off the original PP and 4.5% if you go off current value. GROWTH AND TENANTS BUT

    UNUSABLE EQUITY

    IP 2: Toowoomba QLD (3 bed, 1 bath brick house on a slab) 2011

    Good tenant who pays $310/wk and we paid $285k but it really has only gone up by $15k…not good for almost two years. Could use a reno in a few years but there is no point now as it would be overcapitalizing. Just had an insurance claim as a number of tiles on the roof move and after a storm the kitchen roof and walls all flooded. NO GROWTH BUT TENANTS WITH BLAH YIELDS.

    IP 3: Affectionately named 'My little lemon'. North Mackay, bordering on Mt Pleasant (4 br, 1 bth brick house on slab) June 2012

    Sat empty for four weeks when when first bought and vacancy rates were around 0.6%. PM's mother got brain cancer but agency didn't tell us she had left and didn't pass on our property to another PM. We changed agencies and it rented out quickly.

    Had an undetectable leak under the slab (I posted previously about this). We ended up re-routing the plumbing at a cost of $5,800. Then the plumber flooded the place by accident…which was fine, accidents happen and that was meant to be where this property turned around. Right?

    Instead the a*s fell out of the coal industry and vacancy rates skyrocketed. I called my PM to make sure she had locked in the new 12 month lease we had agreed to a month prior. Apparently it was all good and being sent back just as she went to Bali for a week and a half…thank goodness.

    In reality the tenants stopped by just after she got back to drop the keys off. The bond will cover the two weeks notice they didn't give…can't believe I didn't know it was only two weeks in QLD. Now it has been on the market for four weeks and we have drop from $590 to $560 per week with no takers. Paid $422k so at that rate it would still be ok return but I am not so sure about the market there now. NO TENANTS, NO FORESEEABLE GROWTH

    At any rate, I see the above as littered with mistakes I have made myself, which I will have to learn from and avoid at all costs in the future. Beware of mining, don't buy houses on concrete slabs, stay on your PMs case every single day until a result is locked in, don't enter JVs where you can't manufacture a profit then sell, carry out better due diligence (the topic of this post) to ensure I don't buy in areas that stagnate, buy where I can manufacture growth always, and the list goes on…learning the hard way, but learning.

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