What is due diligence?

There have been thousands of words written about due diligence but it can be summed up in one sentence:

“Get off your back-side and check that what your are being told is true - by someone who has no vested interest in the answer”.

For a property investor the key parameters that need checking are:

1. What is this place worth?

2. What rent can I expect to get?

We all know that markets change but it is not acceptable, whether you are buying a completed property or buying off-plan, to accept the figures given to you by the sales guy in the wide-boy suit. Why would you?

It is your job to check the figures and that can be done very easily by phoning a few estate agents and letting agents in the area and by spending a short period of time on the internet.

Here's a tip - if you want to know EXACTLY what the time of day is, and you want a certain degree off accuracy, it is no point having just one watch. In fact it is no point having two watches either because if they tell a different time how will you know which one is right?

So you need a minimum of three watches to know the exact time of day.

The same is true with property. Get a couple of answers to add to what you have been told by the salesman and chances are you will be a lot closer to the truth.

Also, remember to challenge the figures you are given by asking the source of the data. How many people do this? No -one does it? So where do the figures come from? Were they made up?

If they weren't then you won't mind telling me where you got them from will you?

The reason foolish investors want to believe the very first answer they are given by the sales guy is that it fits with what they WANT to hear. If you start questioning it or getting other opinions you may not get the answer you are looking for. Investors want reassurance and if a salesman tells them they will get 28 weeks at £700 a week why would you want to challenge something as juicy as that?

Because it's probably all cobblers that's why.

Due diligence is all about checking you are not being lied to – so get off your butts and do it. It will take less than an hour at most.

Otherwise I can only assume that you have so much money it really doesn't matter what figures you are given.