Investment Property Due Diligence Process
If you’re new to property investing, you might wonder what the due diligence process is and why it is essential. Due diligence is an integral part of any investment, and the property buying process is no different. It presents you with all the information you need to make before buying an investment property.
What is due diligence?
In short, investment property due diligence is a process of investigation or an audit of the property to confirm all the facts about it. While many things can be written and marketed about the property itself, the country, city, and area it is located, any investor must check whether the property’s information is factual and correct.
Typical due diligence checklist for an investment property includes
- Area due diligence
- Developer due diligence
- Property due diligence
- Financing due diligence
- Rental due diligence
- Legal due diligence
Lifestyle Property International’s due diligence process
Here at Lifestyle Property International, we pride ourselves on our independence and working with the best developers worldwide. By working closely with the developers over the long term, with whom we have excellent professional relationships, we are confident that the properties we feature are all designed and built to the highest standards. Moreover, our internal team of property investment specialists determines whether the property location will be successful and bring the projected rental, and capital appreciation outcome for our clients. As a result, we are confident that all the investment properties we list on our website are located in the best possible investment areas for investment returns.
Location due diligence
One of the most important things to research when considering an investment property in the city and the area where the buy-to-let will be located. Before you start analysing the property’s value, you want to make sure the place you’re looking to invest in meets your criteria. Some of the most important things to consider are:
- Planned or ongoing area investments and regeneration projects
- Crime rate
- Median Income in the area
- Population growth
- School rankings
People generally want to avoid high crime areas, and families are incredibly particular about which school district the home is in. Investing in the emerging regions now means that there is a high chance of the property prices increasing as the area becomes more popular, or the city’s ranking increases in time due to other planned investments, such as new railroads or new employment opportunities.
Related: Best UK City to Invest in 2021
Rental due diligence
On top of the area due diligence, we also perform rental due diligence. This is because most of our clients buy investment properties as buy-to-let, and the rentability of the purchased units is an important factor. So what we look at for this is the historical data from similar properties in the area, especially typical vacant periods and rental prices per equal-sized and located units.
The property’s proximity to a University or transportation hub usually increases the chance of rentability of the units.
Developer due diligence
Who is developing the property has an enormous impact on the due diligence process. When assessing the investment property, we look at the developers with great details here at Lifestyle Property. Things we assess include:
- Track record of previous projects
- Were the previous projects successful
- Were there any delays in the past
- Are there any delays already in their current project
- Demand for projects in both the local and international market
- Is there any bad press about the project or the developer?
These are the basic things we look at when deciding whether to work with a given developer. We have existing relationships with some of the best and reputable property developers in the United Kingdom, Australia, and Europe. The properties they build are delivered on time, made with the best materials and to the best of the developer’s standards.
Physical property due diligence
While many of our clients never even see the property they buy in real life, they trust our due diligence process to cover the physical aspect of the real estate they plan to purchase. That means we gather data that relate to:
- The developer’s standard of the finished units
- Total area vs usable area of the units
- Access roads to the property, including potential traffic conditions
- Stormwater or drainage patterns
- Outside and communal finishings
The list of items that are being assessed during the physical inspection also includes all the materials and the execution status. Such a survey is often performed by the buyer independently as well before the exchange of contracts.
Financing due diligence
Our mortgage specialists from Lifestyle Brokers can do this for you, as this part relates to your need to finance the property. Quite often, when we source international mortgages for our clients, the banks make their own evaluation of the property to ensure that the money they will lend you is secured against a suitable asset. Factors to consider are:
- Rental Yield
- Loan amount being above banks minimums
- Availability of mainstream finance
- Competitive terms
Rental yield is important as we need to ensure that the rent will cover mortgage expenses. Some banks do calculations in terms of their lending in that the rent must cover a certain percentage of the mortgage interest. If it does not then they may not lend, or lend at a reduced loan to value.
Banks typically have a minimum amount they will lend per property as it needs to be economically viable for them to lend. For non-UK residents, this is typically GBP 100,000 and we ensure that clients are aware of this is buying lower-cost property where it may need to be a cash buy.
Leading on from the above there are a handful of specialist lenders who may lend on lower amounts, but their rates are higher, and product fees more expensive. As such we need to work with projects which meet the criteria for many banks to ensure that the best possible financing is available.
Legal due diligence and paperwork
A vital part of the property buying procedure, hiring a solicitor to manage your buying process with the developer’s solicitors. This is not part of our due diligence, however, as investment property consultants, we guide our clients through the process and point out things to pay attention to during the exchange of contracts. Your solicitor will help you revise the contract so that it is fair and reflects any potential issues with the property. For example, it is advisable to include in the contract that the developer is responsible for any structural repairs, or in the case, if an independent survey reveals a problem to the apartment).