Due diligence should be the foundational requirement of any property deal. We need to know all we can about everything from the people lending us the money required, to the training we receive in how to best strategise, and the people suppling that training.
The first thing to realise, is that when it comes to the people lending us money, it will come down to a balanced judgment on that person based upon talking to the and better understanding who they are.
If we are the potential lender, then our first requirement should be that they are creditworthy – don’t be afraid to ask for a copy of their credit file, which will give you a much more comprehensive view of their finances and attitude towards money and responsibility. Bear in mind that some will not have a perfect file, but in this case, judgment should be considered based on honesty. A smart way of determining honesty is to pose questions to which you know the answer ahead of time.
Also take note that all deals come with their own challenges. Rarely does a deal come off perfectly, and no one expects it to. What matters is how your partner or investor handles those challenges. How they handled challenges now should reflect how they’ve done so in the past. A person’s actions tell a story.
The Land Registry website can provide a more detailed picture of who exactly owns any property, as well as other pertinent details such as who owns a charge or restriction on a property. It will also show any lenders involved.. If the property is owned by a company, then this information can be accessed through Companies House. The document you need to find there is known as the Annual Return, which shows the shareholders, their percentages of ownership and a list of directors.
The most important thing to note when making a judgment about someone’s suitability, is that we need to take a balanced view and ascertain to our own satisfaction that the person is honest, and is not making claims that do not correlate with the evidence on show. If there is something amiss, it may be due to personal reasons. Read between the lines where possible. Again, this is a judgment call you’ll have to make.
When beginning in investing, when it comes to all lending and shares, ensure that you have as part of your team, a commercial solicitor instructed by you alone. If you’re investing on a share basis, they will be able to create for you a shareholder’s agreement, which will give you a share in the limited company that buys the deal. Crucially, we need to fully agree on who has what rights within this limited company arrangement – affecting factors such as voting rights and other elements that may impact control.
Investing on a loan basis means that you will have a loan agreement based around a charge system. This again will be properly constructed by your commercial solicitor, who will see to it that the agreement is legally executed and registered with the Land Registry. A loan agreement generally tends to mean that you will not be as involved in the deal itself.
When we begin, we must choose the strategy that will move us upwards on the property ladder. The tactics we utilise to get this journey moving, will depend on our circumstances, and the opportunities at our fingertips. We cannot hope to have access to every avenue in investing immediately, but these avenues will come over time. The important thing is to move up the ladder one rung at a time, and gain as many tools for our toolbox as possible along the way.
Another factor to consider when partnering with someone, is whether or not they have any unspent criminal convictions. This is something that an individual will have to provide for you. This is called a Basic Disclosure which will show historical unspent convictions in the form of a government certificate, which can then be provided for you. A spent conviction will not be shown on this document, as it no longer applies.
Google is your friend when it comes to researching a person or company. Results such as news items or reports can give you a fuller picture of how an entity operates. It is worth noting that hardly anyone will have a perfect track record.
Remember that risk aversion is not something we can always control, but it is something that we can learn to dilute. By edging forward in terms of risk each time, we become more convinced of the likelihood of failure, but also surer of our ability to meet challenges and mitigate those issues when they arise. They key is iterate in terms of taking risks, fortifying and reinforcing our ever-expanding knowledge base and strategical toolbox.
We should never perform due diligence to such an extent that we convince ourselves out of doing any deals. We must take risks sometimes, so gain a balanced view and follow your instincts.