Henderson.

The Two Levels of Due Diligence

Most home buyers understand that they need to perform a certain level of due diligence when
they purchase a property. The problem is that many are doing either the wrong type of due
diligence or they’re simply not going far enough in their analysis.


Whenever you purchase a property it is always recommended that you conduct due diligence.
For most people, this often means a building and pest inspection as well as receiving recent
strata reports and getting all your contracts reviewed by the appropriate professionals.


However, this is simply not enough if you’re looking for a high-quality investment. It’s important
that property buyers assess not just the essentials, but also examine the property on a more
micro level as well.


The two most important areas to assess are how the suburb or area is performing, in the
context of the broader property market and then how your property of interest fits into that
equation.


To do this, you can start by looking at the market from a top-down approach. Looking at NSW,
we can see that the market has performed strongly over the past 12 months. Most of us would
know that the post-pandemic recovery has been particularly strong across many areas of NSW.
From there, you can then examine the suburbs level. What we’ve been seeing is that many of
the blue-chip suburbs of Sydney and also Newcastle, continue to see some of the highest levels
of demand and also a real lack of quality stock. They are two key reasons, that these areas and
the upper end of the market are seeing some of the best gains at the moment.


Once you’ve established that there is genuine demand for the areas you’re looking at, it’s then
possible to focus on the type of property you’re buying. You want to be investing in a property
that other people are going to want to buy off you at some point in the future.


You want to make sure that whether you’re buying a family home or a two-bedroom apartment,
that the property type is in fitting with what people in that area want. We can do this by
examining the recent sales data and seeing what types of properties have been selling and at
what prices. It’s also useful to examine how long the various types of properties took to sell and
how the price might have impacted that figure.


The other way to do this is to reach out to the higher-profile sales agents in the suburb and ask
them directly what is selling and what buyers want. It’s important that if buyers are looking for
family homes in a certain suburb, then that is what you should be looking to invest in.


When doing comparable sales, compare the property type, age and land component with similar
sales in the last six months. When markets are hot, like they are now, property prices can move

sharply meaning that it’s important to take note of the most recent sales. Six months can even
be too long when prices are rising more than 5% each quarter. Again contact sales agents
directly to get the most up to date details of what’s been selling or going under offer and how
quickly they’ve been selling.


If you want to take your due diligence even further, it’s possible to make an offer on a property
subject to a bank valuation or even get it valued of your own accord, to get another opinion on
price.


While this all might seem like a lot of work, the short answer is that it is. That’s the level of detail
you need to be going into if your goal is to purchase a high-quality investment-grade property.
Conducting due diligence is far more than simply ordering a building and pest inspection and if
you’re prepared to put in the work, you’ll get the long-term rewards that others won’t.