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Due diligence is effectively asset-specific research into a proposed investment. Due diligence will take place once you have a high level of conviction that the asset is a suitable acquisition. However, it can involve the commitment of substantial capital to professional fees. Investing in property involves many different elements, each of which should be reviewed by an appropriate specialist professional. The elements for review include: contracts, leases, the agreement for sale and purchase and the certificate of title; town planning; engineering and building structure/fabric; taxation; and valuation. That information is absorbed, analysed and a determination is reached whether the asset is still desirable and if so at what price. A final negotiation of price and conditions with the vendor will then take place. In this way, problems can be identified and (i) resolutions can be created, (ii) contract price can be adjusted to reflect the problems or (iii) financial commitment can be abandoned. Sometimes the best deals are the ones not done. Whichever option you select, you would be well advised to engage a suitably experienced professional to assist.

Not every investment is right for everyone. No matter how smooth or attractive the marketing hyperbole seems to be, consider whether the returns match your quality, sustainability and credibility expectations – both the income return and capital return (return of your original investment). Nothing is guaranteed in investment – so don’t believe that. Returns that seem unrealistic, quite often are. Consider if the risk profile suits your tolerance range. Consider how you can exit the investment in a suitable time-frame without having to accept a lower price to effect a hurried sale. Consider the tax consequences of the investment. Do your research and take advice where you need it – nobody knows everything.

The Reserve Bank left their official cash rate on hold for a record two years in their August 2018 meeting. While growth may be marginally higher and while Central Banks in other countries have commenced their tightening cycles and/or reduced or eliminated quantitative easing, the RBA has deemed that conditions are not yet ripe to commence a tightening cycle.

While the minutes may be more explicit, reasons may include relatively low inflation and wage growth, falling property prices, high levels of extant debt, the muting of the construction cycle, consumer uncertainty and reduced savings rate.

That some banks have already effected ‘out-of-cycle’ interest rate increases reflects the nature of the banking industry and their respective reliance on off-shore capital markets, where interest rates are rising. It also reflects APRA’s efforts to curb lending growth with their increased reserve ratios, stricter credit growth monitoring, lower LVR risk paradigms, the refocus on and increased scrutiny of investor and interest only loans (both of which have become more expensive), and higher lending standards (in large part reinforced by the Royal Commission).

Some economists argue that the next RBA move should be to effect another cut to reinvigorate a languid economy with spare capacity. The marginal benefit of another interest rate cut may however not be enough to encourage sufficient economic activity to compensate for disaffected consumers. There would also be a commensurate impact on the AUD which, while benefiting exporters, would do little for the very banks importing capital from off-shore markets to on-lend to consumers – with the additional cost built in to a higher interest rate. Oh, the complexities we weave…

Legend has it that British Prime Minister Benjamin Disraeli was credited with this phrase which was popularised by Mark Twain. It is no less true in property than in any other application. If data is tortured hard enough, it will confess to anything. Numbers presented as fact can be persuasive however the interpretation and context of the data is crucial to understanding the appropriate meaning of the analysed data. Investors should seek to understand the underlying inputs and assumptions used to arrive at the conclusions presented, including back-tested data. Marketing hyperbole can be engineered to appear to be statistical fact – but isn’t always.

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