Ten things to look out for when doing your due diligence on a property
Michael Dent of NRLA recognised supplier Property Data on the ten most important things to look out for when weighing up potential property purchases.
Buying a new rental property normally involves three distinct stages:
1. The research phase, where you assess the market and analyse the prospects of different possible investment areas;
2. The sourcing phase, where having identified an investment area you search for specific opportunities;
3. The due diligence phase, where you evaluate a potential property in detail with a view to making an offer.
The first two phases are certainly very important, but arguably it's due diligence that you should never skimp on. A few hours invested in careful evaluation here might stop you making an expensive mistake. With that in mind, I've put together a list of ten important things to look out for when evaluating potential residential property purchases in the UK.
Boundaries & ownership
It doesn't get more fundamental than this. Check online that the boundaries of the property are where you think they are, and verify ownership of the official title. For bonus points, consider researching the ownership of neighbouring properties to look for any red flags.
Valuation & comparables
What's a fair price to pay for the property? You should run a comprehensive valuation process, trying several different methods to arrive at a consensus and making sure to look carefully at £/sqft values too. Find nearby, relevant and recent transactions as reference points.
Rental yield
Assuming you're planning on renting the property to tenants, you should run a similar process for to derive a rental valuation. Look at similar properties on the rental market in the immediate vicinity to help you determine a realistic rental yield.
Finance strategy & issues
How do you plan to finance the property – do you need a buy-to-let mortgage, or specialist development or bridging finance? It's best to get an agreement in principle before making an offer, and be certain that there aren't any issues that would prevent finance being secured against the property, such as subsidence, bowed walls, heavy roof damage or serious damp.
Transaction costs
Have you budgeted correctly for the transaction costs involved? Stamp duty rules are now different in England, Scotland and Wales, and according to whether you are a first-time buyer, second property buyer, or buying non-residential property. Surveyor fees, legal fees and official search fees among other costs all need to be accounted for.
Building costs
If you are planning on doing building works to the property, do you have a realistic estimate of the construction costs? Consider using objective data to estimate a construction project on a £/sqft basis, based on the region of the UK and whether you are extending or carrying out a light or heavy refurbishment.
Planning policy & constraints
If any planned construction work will need planning permission, make sure to check the local planning policies and any relevant constraints, such as whether the property is in a National Park, Area of Outstanding Natural Beauty or within the greenbelt. It's worth looking at the site's own planning history too, and for more complex projects you might want to get an opinion from a planning consultant.
Legal restrictions
This one is boring but important – check online whether the land title has any legal restrictions, such as easements or covenants.
Flood risk
Although this doesn't apply to the vast majority of properties, it's absolutely critical when it is relevant. You should confirm the official flood risk for the property, and whether the property can be insured against flooding if necessary.
Internet speeds & mobile coverage
They say internet access is now a human right, so make sure the property isn't going to leave you or your tenants browsing the web like it's 1996. Likewise, it's worth checking that there is solid mobile coverage from at least one and preferably two or more providers.
The power of having everything in one place
We created PropertyData so that landlords, investors and developers would have all the data for purchasing residential property in one place. On our website you can do every single one of the due diligence checks I've described in this article – a huge time saver.
And that's just part of what we offer – our wide range of tools can help you with the research phase and to source property opportunities as well. Why not give it a go today, free for the first 14 days and starting at just £14/month after that.
Michael Dent is the founder of PropertyData, a website that helps landlords to use data and analytics to make better decisions when investing in residential property. Monthly subscriptions start at £14/month.
