Due Diligence for Investors

Specific checks and balances required to ensure an investment property is a viable and safe asset.

Physical Due Diligence

As an investor, you must view a property through the lens of maintenance and liability rather than emotion. A building and pest inspection is non-negotiable. Look for structural issues, rising damp, and evidence of termites, as these can lead to astronomical costs that wipe out your returns. Pay close attention to the age of the hot water service, the condition of the roof, and the electrical switchboard. If the property was built before 1990, it likely contains asbestos, which requires specialist handling during any repairs or renovations. Understanding these future costs allows you to budget correctly.

Compliance and Safety Standards

Victoria has strict minimum standards for rental properties. Before buying, you must ensure the property meets these requirements or calculate the cost to bring it up to code. These standards cover everything from functional kitchens and lockable windows to heating and ventilation. Furthermore, landlords are required to conduct mandatory gas and electrical safety checks every two years, and smoke alarm services every year. If you buy a property that does not meet these standards, you cannot legally lease it until the necessary works are completed. This can lead to unexpected vacancy periods.

Reviewing the Section 32 statement, also known as the Vendor Statement, is a vital part of due diligence. This document disclose information about the property's title, outgoings, and any easements or covenants. For investors, it is particularly important to check for any building orders or notices from the local council. If a previous owner performed illegal building work, you as the new owner could be held responsible for rectifying it. Always have a solicitor or licensed conveyancer review the Section 32 before you sign any contract or bid at auction.

Cladding and Owners Corporations

If you are purchasing an apartment or a townhouse with an Owners Corporation, you must investigate the potential for combustible cladding. The Victorian Building Authority has been active in identifying high-risk buildings. Rectification costs can be enormous and are often passed on to owners through special levies. Check the Owners Corporation meeting minutes for the last two years to see if there are any discussions about cladding, structural defects, or significant upcoming maintenance. A well-run Owners Corporation should have a healthy sinking fund to cover future repairs.

Independent Valuations

While the bank will conduct its own valuation for the loan, an investor might choose to pay for an independent valuation before making an offer. This provides an unbiased view of the property's worth, independent of the selling agent's marketing. A valuer will look at comparable sales of similar properties in the area over the last six months. This helps ensure you are not overpaying in a heated market. It is a small price to pay for the peace of mind that your investment is grounded in realistic market values rather than speculative hype.

Finally, consider the insurability of the property. Some areas in Victoria are prone to flooding or bushfires, which can lead to high insurance premiums or even a refusal of coverage. Before committing, obtain an insurance quote using the property address. If the premium is unusually high, it may indicate a level of environmental risk that makes the property a poor long term investment. You should also ensure that landlord insurance is available, which covers risks specific to renting such as tenant damage or loss of rent.

• Order a building and pest inspection
• Check for Victorian rental minimum standards
• Read the last two years of Owners Corp minutes
• Verify the property is insurable at a reasonable rate