How to spot a dud

By Staff Reporter 22 November 2012 | 1 minute read

There are many properties on the market at any one time, and the best investors are those that can quickly tell a good choice from a dud. So, how can you tell straight away if the property is “no good”?

Even before you have started looking for the property, you should have already established a list of ‘write-off factors’. What features will a property have – or lack – that should make you say no immediately? These should include features that will impact your ability to attract quality tenants.

The write-off list will, of course, vary from investor to investor – not just because investors have different preferences but also because they have different investment needs.

There are, however, a few warning signs to look for and checking them against your list should be considered an important part of your due diligence.

Todd Hunter, director of buyer’s agency wHeregroup, suggests looking at the floor plan of a house as well as it’s positioning on the street since the internal layout can have significant effect on its value. A tiny master bedroom, for example, should immediately ring alarm bells.

One of the biggest red flags for Mr Hunter is a swimming pool: “Pools turn me off straight away,” he explains.

“I don’t buy pools for an investment [property]; they are out of the question. From the point of view of regulations, these change quite often so you have to stay on top of what’s going on.”

While continuing maintenance is an issue, the major concern, of course, is a tenant or their children drowning. “I imagine your life would never be the same, knowing that someone has died on one of your properties,” he continues.

“But there’s not only that: the tenant’s life is completely ruined, and there would also be the investigation into it. I think for those two things alone, it’s just not worth it.”

Propertybuyer’s Rich Harvey adds that your due diligence and your write-off list should also include external factors, such as a sewage plant, noisy major highway or a bikie gang hangout close by.

The key to knowing straight away is to be fully aware of a potential problem and to take every step to mitigate that risk or to know how much it is likely to cost you to fix it.

Most investors wouldn’t even consider a property if it has plenty of wood in the structure and plenty of termites to go with it. A front lawn, however, won’t necessarily be a deal breaker provided you are aware it may require maintenance, while proximity to a highway may not be a huge problem if the amount of noise is limited.  

Mr Hunter and Mr Harvey advise looking at the surrounding properties as part of the due diligence process to gauge who lives in the area and how they or their properties could potentially impact your purchase.

According to Mr Hunter, it’s good to know whether or not an area is predominantly investment properties. “I like to get a good mix of owner-occupied and investment in the one street,” he says, “although I prefer to have a property that is in a predominantly owner-occupied area. You can tell that by the gardens, the front lawn and the care factor.”

PropertyBuyer’s Rich Harvey lists some of the first steps you should take when doing your due diligence:

  1.     Get an appraisal or valuation done
  2.     Estimate the rental amount by talking to three local property managers
  3.     Meet with a building inspector to estimate possible repairs required
  4.     Check comparable sales in the area
  5.     Find out why the owners are selling
  6.     Look for lifestyle attractions: schools, shops, recreation, transport

How to spot a dud
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