Peace of mind comes from comprehensive, not compulsive, questioning
In a recent article, I discussed how to assess a property investment in 10 minutes. Of course, that method is only the initial step in your due diligence. You’ll need to go much deeper to fully assess property investment opportunities. This means asking some difficult questions: questions that most home buyers and property investors won’t even think about.
Here are seven questions that savvy property investors always ask before parting with any cash. Failing to ask these questions could prove very damaging to your wealth.
1. How could this opportunity fall over?
It really is important to take a breather before committing and revisit the negatives, especially for beginner investors. When just starting out, and having made the decision that property investment is the best route for you, it’s easy to get carried away and see only positives.
This question forces you to take a deep breath and ask yourself, “What could go wrong?”
2. For off-plan purchases: what is the likelihood of the developer/vendor going bust?
You must assess developer risk when you buy off-plan property. You’ll need to make background checks, find out about their development record, and uncover any insurance claims made against them. Read my article “How to slash developer risk when you buy off-plan property” for more information.
3. Is planning permission in place, and does it match the proposed/actual development?
These are among the searches that your solicitor should make. Don’t neglect this. If you do, it will surely come back to bite you in the butt.
4. Has the developer/vendor provided proof of ownership?
Another of the questions that your solicitor should answer. If the developer can’t provide proof of ownership, you must not go ahead with the purchase.
5. Are off-plan contracts assignable?
Another question that you must ask, though assignable contracts are only a necessity if you intend to sell the property before completion. If you intend to complete, then it’s not essential. Many contracts these days will still require approval from the vendor before you can assign to a new person.
6. Are there any landfill sites in the vicinity?
You need to know what stood on the site of your development before it became what it is today. A lot of landfill sites have been acquired for development – but they can prove problematic, for environmental and other reasons. Your solicitor’s search should tell you this, but if you can find this out before you get to that point, you will have saved yourself a lot of expense.
7. Has the property or surrounds been used for purposes that could mean the soil is contaminated?
I don’t think this one needs any explanation!
Questions you don’t need to ask
We have an extensive due diligence questionnaire that we use when assessing property investment opportunities for investors. We could easily extend the 89-question list to 970 questions. There are endless questions a buyer can ask. But in the end, you must reach a decision. Over-analysing will lead to prevarication and simply stop you from making a profitable decision.
What do I mean by over-analysing?
Let’s take an example question – Does the property have a pool? The answer could be ‘yes’, and you could be perfectly happy with this answer.
You could ask a bunch of follow-up questions:
- Are there social areas around the pool?
- Is there a BBQ within easy reach?
- Is there a shaded area around the pool?
- Does it have a spa? Does it have a shallow and deep end?
- Will it be in the sun all day, or will the two 20-storey buildings shade it except between 10am and 2pm?
The list of questions can go on and on. The trick is to find a happy medium, and a depth of questioning that satisfies you and provides the tick or cross in the box that you are looking for. If it’s a factor that will make a difference to tenantability, then deeper questioning will be warranted; but if it’s something like the rubbish bin is too far away, you might choose to ignore the ‘problem’ as a non-problem.
There are no children listening, so I can say this (!):
You should always ANALYSE a property, but spend too long and you’ll start to ANAL-YSE it and you’ll become so bogged down in detail that you will miss the opportunity.
Finally, IT’S DECISION TIME…
By this time of your due diligence process, you’ll be near making a decision. If you aren’t inspired with confidence, then STOP the process and move on to the next property. Remember: the best deal in property comes along every day.
If you are sitting on the fence, revisit the due diligence you’ve carried out so far. When it looks good (to this point), finish the due diligence with a site visit and property inspection – a subject I discuss in my next article, “Tips to conduct a successful site visit when you invest in property”.
Live with passion