Proper Due Diligence is Vital

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DueDiligence2

MANY PEOPLE will make the mistake of not carrying out a due diligence study BEFORE they acquire their Commercial properties.

But this can end up becoming a very expensive process — because you’ll can often miss out on the property, if someone else snaps it up, before you’re able complete your study.

Therefore, the secret lies in ensuring you negotiate a deal — where your due diligence occurs AFTER you have tied up the property, under a binding contract of sale.

Anyway, here are the 5 Key Elements you need to investigate …

1. Building Condition including Regulatory Assessment

  • What is the condition of the building asset? Has it been modified?
  • What form of construction has been used? Is this suitable?
  • Has the building been maintained? If so, what agreements are in place?
  • If not, where in its life cycle is the plant and equipment?
  • Does the building meet current BCA requirements? Is upgrade required, to achieve compliance?

2. Capital Expenditure Assessments and Forecasts

  • What capital is required to be spent on the building asset?
  • Review immediate, mid and long term requirements.
  • Identify and manage suitable contractors to undertake works.

3. Operating and Maintenance Cost Assessment & Benchmarking

  • Review the maintenance agreements in place. Are they appropriate?
  • Review property outgoings. Are there are any areas of excess use or cost?

4. Planning and Management of Sustainable Upgrades

  • Can the building operating systems be modified or replaced to increase efficiency?
  • Can sustainable features be incorporated into the building?
  • What options are effective and what is the projected payback.

5. Strategic Asset Management

  • What is the best use for the building? How can this be achieved?
  • How can the building be developed to add further value to the bottom line?
  • How can the property be upgraded and be re-positioned in the market to improve returns or increase leasing/sale interest?

Bottom Line: A Due Diligence study on the buildings structure may incur a modest cost at the time you purchase your property. That this can be added to the cost base, for your later Capital Gains Tax calculations.

However, more importantly, it will end up being very cheap insurance — because you will confirm whether or not the property IS as you thought it was — by avoiding any nasty surprises down the track.

Pearce

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