Property investment crashes without due diligence

Never rush into a property investment

Vince was a property investor who had concentrated on buy-to-let properties. He had a portfolio of eight properties and was making a regular income from them. His strategy had been to buy off-plan property, benefiting from staged payments, an uptick in capital value by completion, and strong rental demand in some of the best places to invest in property UK.

He was doing well and still is. However, there was one very bad investment he made. In hindsight, Vince now realises that he should never have bid for the property he should never have bought. Not only was it an investment out of his comfort zone, but it was also a property investment opportunity that he rushed into. He always, without fail, carried out comprehensive due diligence. Until this one time. This is the story…

The property investment opportunity that was a pile of doggy do-do

Vince was bored. He had a great property portfolio, with eight properties all performing as planned; but he lacked something in his life. There were some things at which he excelled. He was creative and enjoyed making things. He enjoyed making money, and if his property portfolio was anything to go by, he was pretty good at property investment, too. But he was an investor who couldn’t stand still and take a breath. He was always looking for the next killer investment.

One day he was chatting to a fellow investor, Brendon, who told Vince about a property he’d seen for sale. He was considering making an offer on it but was yet to go and view the property.

“It’s five acres of land, but it’s the buildings that are the interesting bit. It’s a disused kennel, with a large house and two cottages attached. It’s in the perfect place for conversion to a country hotel, or perhaps an equestrian centre. At half a million, it’s a snip.”

Vince knew the place. He drove past it most days. It certainly looked the business. It had been well kept, although some of the land was overgrown. Nothing that a little tender loving care couldn’t put right.

The following day he put in an offer of £450,000. He was surprised when it was accepted almost immediately, but elated, too. He was looking forward to getting his hands dirty, converting the kennels into holiday accommodation, and then maybe reselling it for a handsome profit. Exactly how Brendon had made his money in property.

Three years later and…

The problems for Vince started a couple of days after he had completed the purchase. Until then he hadn’t viewed it properly. There was no need. He drove past it most days, besides which, if the investment opportunity had been good enough for Brendon to consider bidding, there was clearly money to be made. Brendon had never bought a bad investment property.

When Vince finally visited the property, he hadn’t been prepared for what he found.

The main house looked great from the outside, but as soon as you opened the front door, the problems came at you thick and fast.

There had been a minor fire in the kitchen, which had burned out most of the electrics. The house had clearly been used as a squat or perhaps a place where teenagers hung out. There were signs that there had been illicit parties here and graffiti-adorned almost every wall. The central heating would need to be entirely replaced, and part of the ceiling had collapsed. Looking up, the blue sky was clearly visible in a patchy roof that would have to go.

Perhaps worst of all, there was a large and clearly widening crack stretching from the floor in what would have been the living room into the attic space. The whole house was damp. And it had bats, a protected species. That might cause all sorts of problems with planning permissions.

The cottages weren’t in quite such a bad state of repair, but the kennels were a write-off. In fact, the whole property could have been considered as such.

Three years later, and Vince was still sitting on the property. It was simply too big a project to put right. To tear down all the buildings and start again – the only sensible option – was simply too expensive. Meanwhile, having his money tied up in a pile of dog’s doings stopped him from making several profitable property investments.

Why did Vince make such a mistake?

In Vince’s haste, he’d forgotten a golden rule of property investment: never buy without doing your due diligence. He was so keen to get his hands on the property that he hadn’t taken the time to work through all the pros and cons. He’d mistaken Brendon’s comments as an endorsement of the investment potential.

Some would say that Vince got his just deserts because he tried to get in on a deal that Brendon was considering. They might have a point, but for me the lesson is clear: act in haste, repent at leisure.

On every other property investment that he’d made, Vince had followed a due diligence process:

  • Research the property investment opportunity
  • Consider the numbers and work out cash flow projections
  • Inspect the property, and get it professionally assessed
  • Inspect the title deed

It is your due diligence that will stop you from investing in a pile of doggy do-do. It will ensure that the property is all it’s cracked up to be and that the numbers add up. It’s an essential step in every single property investment you make.

How to get your due diligence right every time

If you follow a tried-and-tested due diligence process, you’ll avoid the mistakes made by investors like Vince. There are four general tips I’ll give you right now:

  • Don’t be desperate to do a deal
  • Never make an investment without an inspection (either by you or a professional – preferably both)
  • Avoid thinking “It will come right in the end.”
  • Never rely on the seller’s sales literature
  • Don’t be rushed into a deal by the seller

I’ve been investing in property for more than 20 years, and have honed my process to an 89-point due diligence checklist. Every single property that we source for clients goes through this process.

Where can you find more information about due diligence?

When I present to new investors, in seminars or individual meetings, I always talk about due diligence. It is that important in the property investment process.

Contact one of our team today on +44 (0)207 923 6100, book a meeting and discover why investors use our due diligence process on every deal they make.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
December 30, 2016

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