How to assess a property investment opportunity in 10 minutes

8 steps and 10 minutes is all it takes to decide on a property investment

As I explained in a recent article, doing the comprehensive research needed to make sure a property investment opportunity is packed with potential takes a lot of time. The 89-point due diligence report takes around five hours to complete effectively. It doesn’t take too many of these to fill a year. To save time, I use a quick 10-minute checklist to assess if the potential opportunity will be worth spending those five hours researching.

The trick of the 10-minute checklist is that it is easy. If the property fails at any point, STOP. Simply go to the bottom of the checklist and answer the three final questions. These will determine whether the property investment opportunities are worth proceeding with, or you should proceed to the full research stage.

8 steps, 10 minutes. Your property investment checklist

The following eight steps are your key to making a quick and correct assessment of any residential property investment before you spend the hours needed for more comprehensive research.

Step #1: Check the values

Check the property’s real value, and remember the first of the two laws of property investment. Law number one is to always buy property below market value. At this stage of research, you want to know that you will be buying at below market value, or at least have a chance to negotiate to below market value.

Step 2: Understand why the seller is selling

This is a key understanding of the property. I like to know why the seller is selling. It tells me a lot about the property, and the psychology of the person selling. So, the questions I am going to ask the person who has offered me the property are:

  • Why are they selling the property?
  • How long has it been on the market?
  • How many viewings has it had? Any interest? Any offers?
  • What are they willing to accept?
  • How negotiable are they on price?

If you are buying existing property and speaking to an agent, delve deep and don’t accept the first answer. Here’s an example of what I mean:

You may ask “What are they willing to accept?”

“Nothing less than £200,000” says the agent.

You respond, “OK, but if I was to put an offer of £185,000, would they consider this?”

The agent responds, “No!”

So, you say, “But what if I can exchange within 21 days?”

This kind of questioning works, it just involves you almost ignoring what the agent first says. Remember, too, that the agent is always angling for the best price for their client. They are never on your side; after all, the seller pays the agent’s bills.

Step 3: Check the rents

There’s no need to check online for this step (although it’s perfectly possible to do so). It’s far better to call a local agent and have a conversation about rents. You’ll also get a great feel for what the ‘real’ rents are.

Step 4: Check for regeneration

You are looking for money that is being spent, promised, and already committed to being spent in the area. You are looking for how this will:

  • Grow jobs
  • Build commercial, industrial, and residential properties
  • Develop shopping centres
  • Develop new roads, parks, leisure activities
  • Develop anything that makes an area attractive to potential tenants

Step 5: Check the property’s mortgage-ability

This is all about knowing enough about the property and relating this to the mortgage criteria available at the time. I recommend using a mortgage broker: a simple call will provide the information you need.

I still call my broker before I buy a property, and you’ll need to as well. First, because you are new to it all, and therefore ‘should’ (hint hint) want their advice. Second, as you build your portfolio, you’ll need to consider exposure levels and cash flow impact on your portfolio.

Here’s a list of things that my broker said will affect the mortgage-ability of a property in the UK (and most other countries):

  • Lending over commercial premises
  • High-rise above four floors in the build, especially if there is no lift
  • Type of property – concrete builds are not liked
  • Investor experience
  • Loan-to-value required
  • Interest rate required
  • Minimum size of the property and land
  • Certain suburbs
  • The area around the property can affect lending also; for example, some lenders will not lend if there is a bar/nightclub or restaurant opposite or next door to the property
  • High voltage power lines, because of the possible health risks
  • Lenders stipulate a minimum lease at outset
  • Some won’t accept freehold flats
  • Properties with an agricultural tie
  • Listed buildings
  • Some lenders will also refuse to lend if they believe that the flat is in a development that will be highly populated by student lets

Step 6: Check for the obvious avoids

Uncover any problems that will affect the property and its potential to provide satisfactory returns. The easiest way to remember the checklist for obvious avoids is the following:

  • Smell – People hate living where there are foul smells. Be wary of buildings, businesses, factories, sewage works, and bin stores that could kick up nasty smells and affect the property.
  • Sound – Fire stations, police stations, nightclubs, shopping centres, sports centres, etc. There are plenty of things that can create unwanted noise pollution.
  • Sight – Unsightly views, such as cemeteries, industrial estates, electricity substations, and so on.
  • Taste – OK, so maybe this one is a bit far-fetched, but I once stayed in a flat in Alice Springs (Australia’s centre) where the water was brown, smelt bad, and tasted twice as bad. Hmmm.
  • Electric – I know this doesn’t go with the others, but I am against power lines being anywhere near my properties.

Step 7: Look at the street

Use Google Maps to get a feel for the view of the street and local area. Navigate your way around, and discover the local area from the comfort of your own home.

Step 8: Conduct a quick cash flow projection

Calculate the cash flow of the investment opportunity, including all costs associated with holding the property and its potential rental price. Don’t forget to include costs for anything that isn’t included in the sale (for example, fixtures and fittings, furniture, external buildings, etc.).

Now, make your decision

With the answers to these questions, you can now decide whether to continue with your more extensive research. Has everything you’ve researched so far given you the confidence that the property is worth considering? If you aren’t inspired with confidence, then STOP the process and move on to another property. Remember, ‘the best deal in property comes along every day’.

Three final-check questions you must ask

Here are three questions to ask before proceeding to the next stage of research:

  1. Is the decision to buy an emotional one?
  2. Am I trying to make the research fit the property?
  3. Shall I continue to investigate this property?

If the answer to questions 1 or 2 is “yes”, then the answer to question 3 should be “no”.

To discover more about our property research methods, and how they have helped hundreds of investors invest successfully in property in the UK, contact Gladfish on +44 207 923 6100.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
March 2, 2018

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