When it comes to due diligence, you’ll have to do a lot of work to ensure that you’re buying the right property.
Luckily, you won’t have to struggle too much.
The agent or vendor that you’ll deal with should help you gather most of the information you need to make a smart decision.
And the most common way they do this is through an information memorandum, otherwise called an investment report.
Basically, a memorandum should contain the majority of the information you need to find out if a property is right for you. However, this doesn’t mean that you can just go through it and make the final decision.
Instead, you’ll want to check all the information you get and give your feedback or questions that you have to the agent.
So what can you expect to see in a memorandum?
The truth is, this can vary greatly.
Some agents do an outstanding job of making a highly-detailed memorandum packed with all the data you need. Others get a bit sloppier, so you’ll likely have a back-and-forth thing going on.
Still, there are a few sections that pretty much every memorandum should cover.
The first one is the introduction.
Here you’ll find some basic information about the property, including its location, price, and other vitals.
A good thing about this is that you can always copy/paste this information when talking to your banker or a solicitor. By doing so, they can get an overview of the property and give their opinions.
After the intro, a memorandum should list the property’s opportunities.
This includes things like exposure, tenancy, scarcity of similar properties in the area, and so on. In most cases, you won’t find any negatives, which is exactly why you need to do your own research instead of putting all your faith in the memorandum.
After all, remember that you’re getting this report from someone who has a vested interest in making a sale. So they’ll only highlight the good stuff.
Another important section of a memorandum is the executive summary.
It contains crucial information like the address, lot number, and title references. You can give this information to your finance guy so that they can look it up online and provide their insight.
You should also send this data to an architect so that they can have a closer look. They can tell you if everything’s in order.
After the summary, you’ll likely find the ‘additional matters’ section. In it, you can find some important data that will let you take full advantage of the property.
For example, you might find that there’s unused space that you can leverage to increase the rent. You might also find other ways to boost the property’s income and generate higher returns.
In relation to the ones above, you should also see a tenancy checklist on the memorandum.
Now, this is where you’ll want to do some further digging as the numbers might not always be accurate. You might also identify some liveable space that the agent didn’t spot.
That gives you an advantage as you can buy below the true value and benefit later.
As you can see, there’s a lot that a memorandum can tell you. What I’ve told you is only some of the information that you can find.
Many times, you’ll get the majority of data you need to make smart investment moves.
Again, make sure to check all the information, as you can identify many opportunities that the agent or vendor didn’t.
If you need any help learning how to go through a memorandum the right way, sign up for my free webinar
James Dawson
Author, Ex Real Estate Agent, Self-Made Multi Millionaire Full Time Property Investor, Cash-flow Lifestyle Advocate, Keen Surfer, World Traveller, Australia's #1 and Most Experienced Commercial Property Investing Coach
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