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How to Do Due Diligence

What stops most people from investing in property?

It’s not knowing how to do the correct due diligence…

People might say it’s scary to invest in property; the market might crash, the interest rates are increasing, I heard the story somebody lost money, or some builder ran away with somebody's money

“I don’t want that happening to me.”

Well, there is a misperception about risk.

People mistake risk and the unknown as the same thing.

But, if you are going to build a business or generate income through property then you are going to go into the unknown. If it was already known you would already have done it.

At the start of 2023, there probably will be loads of people wanting to set New Year’s resolutions or some kind of review of the year.

This is good because it sparks interest and intrigue into what can be achieved this year.

When it comes to property investing, doing due diligence is very straightforward but oftentimes complicated.

The numbers that you are looking for are the following:

If you are looking to rent out or sell, you always start with a GDV which stands for the gross development value.

To work this out, use comparables or understand RICS valuers. The calculation they would use to work out the value of a given type of property you are going to create.

The next number you need to understand is the cost to turn it into the end value.

This will then tell you how much you can buy it to still make your profit or recycle your money through refinancing.

The other number that catches people’s attention is the cash flow after the refinance at the higher value. This is because your mortgage payment is going to be higher because you’re borrowing more money.

The two numbers that I am looking at above all are how much money am I going to take out the deal or how much am I going to leave in which I called the money in and money out.

And the cash flow after the refinance if it’s a rental property or the profit if I’m going to sell it.

This is the basics of doing due diligence on whatever size project you are doing. With different strategies, it may introduce different complexities but that doesn’t mean it has to be complicated, you just need to follow the formula and trust the process.

The biggest thing is to trust yourself so make sure you do that this year in 2023.

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