Investment in Property
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Carrying out Due Diligence on your off-plan investment
If you are considering having an investment in property you need to be sure that you are investing wisely with people or organisations you trust. One of the biggest mistakes made over property investments is the blind faith that some novices place in what they are being told. If you are considering an off-plan investment, below are some of the details you should be checking.
What to look for – Developer or Promoter
Firstly, find out something about the people or the organisation you are dealing with. Who are the principal officers of the company? Have they ever in the past been involved with companies that have been declared bankrupt or gone into liquidation? Have they ever been convicted of fraudulent activities? Do you personally know any of the companies’ officers or have you met them?
Where is the company based? If it is close to you, could you take the time out to go and see their offices for yourself and make sure they’re real. Is it a promoter or a developer you are dealing with? If a promoter, you need also to carry out the same due diligence on the promoter and the developer.
Internet research is invaluable here as there is so much company information available through the internet. Occasionally, there might be a small cost in obtaining it, but usually it’s very worthwhile. Companies House is a useful source where you can determine whether a company has been regularly posting its accounts. If not, flags are beginning to pop up!
If you are dealing with promoters or developers based overseas consider either hiring a lawyer to carry out research on your behalf or visit the country personally and get the facts for yourself.
Investment in property is a serious commitment and should be taken seriously.
What to look for –The Development
Here you need to know a number of details. For instance, who owns the land on which the development is to be built? Many investors will not invest if the land is mortgaged because that is an indication that a lender may have the ability to step in and control the development at any time they deem fit.
Is there full planning permission granted? You may need to get online to access a local council’s planning department files to determine the status of planning permission. It’s best to do that for yourself although the promoter/developer may offer copies of the planning permission.
Are there bank guarantees to protect the investor’s capital? Find out what these guarantees cover. Sadly, many investors will quote their own stories of financial loss even with bank guarantees in place. That’s why it’s worth finding out more about them and how valuable they are.
What to look for – the money trail
You are likely to be called upon to invest some of your own money for your property investment. Do keep this to a minimum wherever possible. If you have to contribute a reservation fee, do find out whether it’s refundable if you should change your mind. If dissatisfied by the response, think twice before commitment.
Thereafter, generally you will need to make further payments for deposits and then stage payments.
What you need here is a clear trail of what is happening to your money after it leaves your bank account. Is it going to stay in the country or is it going to disappear off shore? Is it going into a solicitor’s client account or into an escrow account? Details such as these are useful for your reassurance and peace of mind.
What to look for – the Contract
It is good practice to have a lawyer look over your purchase contracts to identify any clauses which are designed to be in favour of the seller and to the detriment of the buyer. This is something that you could undertake yourself but it is not recommended.
Contracts are produced for the protection of all and hopefully, will never again be referenced. But that doesn’t make them irrelevant. It’s just that if you need to take them off the shelf then generally something is going wrong in the relationship you have with the seller. That’s why it’s so important to get contracts checked thoroughly by a professional. If you’re buying overseas ensure that you and your lawyer speak the same language and can understand each other.
There are many other points of detail to check before your investment in property is reality but this is intended as a pointer towards doing proper due diligence rather than trusting to good fortune.