Property Investor Buyer Checklist

Property Investor/buyer Checklist

Remember the crest model

Credibillity of the people you may JV with and the numbers

Return – What will you get for your loan?

Exit – Has this been clearly defined? Is it re-finance or sale or rent or SA?

Security – First Charge, second charge, Guarantee or Trust document?

Trust – Do you trust in your gut that the lender/JV Partner will return your money with the agreed % return?

THE BASICS of the property

· Is it a flat, terraced house, semi-detached house, bungalow, other?

· How many bedrooms?

· How many en-suite bedrooms?

· How many bathrooms?

· How many reception rooms?

· What's the total floor area by Sq ft and Sq M? (Hint: You can find this on the property's EPC)

· What outdoor space is there?

· What's the general condition? (Hint: Kerb appeal. First time you pulled up, what did you think?)

IF IT'S A FLAT…

· What floor is it on?

· How many floors in total in the building?

· If more than three floors, is there a lift?

· Is it ex-council?

· Is there a parking space?

· Is it of standard construction?

· If leasehold, how many unexpired years are left on the lease?

· What's the annual ground rent?

· What's the annual service charge or Factors fees?

THE HISTORY

· If it's being sold by an agent, when was it first listed?

· Have there been any price drops?

· When did it last sell, and for how much? (Hint: Zoopla or Rightmove will tell you)

· Has it ever been entered into auction or sold at auction?

WHAT ELSE IS ON THE MARKET locally?

Look at properties that are currently on the market locally, of a similar type and size in sq ft or sq m, within a quarter of a mile. For each property note on a spreadsheet:

· Type of property

· Number of bedrooms

· Floor area

· Asking price

· Date listed

· Any price drops or status changes?

· Any other relevant notes affecting value (e.g. condition, outdoor space)

If there aren't enough results, open up the search area to half a mile and/or relax the constraints on the type and size of property – being aware that this will reduce accuracy.

WHAT ELSE HAS SOLD?

Look at sold price data for the last few years, noting down:

· Type of property

· Number of bedrooms

· Date of last sale

· Sale price

· Any other relevant notes affecting value

You can get house price data from many sources (they're all pulled straight from the Land Registry), but my favourite is Rightmove because often it has photos, which you can use to determine condition etc.

WHAT DO THE local estate AGENTS SAY?

I'll call a couple of agents who are selling similar properties locally, and ask for their opinion on what they feel is an achievable selling price, whether it's a pure “investor area” or if it would appeal to owner-occupiers, as well as any other information I can pry out of them. It's always worth considering their own incentives for “shaping” the truth, but in my experience agents are pretty honest and helpful (shocker!) when you just call out of the blue.

WHAT DOES your MORTGAGE ADVISOR SAY?

If there's any doubt about the ease of obtaining a mortgage on the property, send some information over to your mortgage advisor to get an opinion on whether there are likely to be any challenges.

For the most part there are more issues with flats than houses, which could include:

· A short lease

· Too many floors or storeys

· Above commercial premises

· Non-standard construction

· Ex-local authority

WHAT IS AVAILABLE TO RENT?

Exactly the same way that you look at what was on the market for sale, do the same for rentals. Include those listed as “Let Agreed”, because these have normally let in the last few weeks so count as being relatively current.

As well as the asking rent, property type and number of bedrooms/bathrooms/receptions, note down:

· Date listed

· Status (available/let agreed)

· If it's offered furnished/unfurnished/part-furnished/carpets/curtains

WHAT DO THE LETTING AGENTS SAY?

As with sales agents, call a couple of local letting agents who are marketing similar properties and ask them:

· How quickly properties tend to let

· What they think a typical rent would be

· What type of tenant it would attract

· Whether there's a strong preference for furnished/unfurnished

We find agents to be fairly helpful – although with lettings in particular, there's pot-luck involved in how knowledgeable the person who picks up the phone can be.

WORKING OUT THE NUMBERS…

Based on the research so far, now work out:

· Best case market value

· Worst case market value

· Best case rental value

· Worst case rental value

· Best case gross yield (top rental estimate / bottom of capital value range)

· Worst case gross yield (bottom rental estimate / top of capital value range)

Then plug these numbers into a spreadsheet along with an estimate of expenses (mortgage, voids, maintenance etc.), to calculate the likely Return on Investment or ROI. There are ROI calculators and yield calculators available online when you use that exact search term.

THE AREA

If the property isn't in a location you’re familiar with, it’s probably not one to go for, remember your Goldmine Area should be one that you know really well. If it’s not, then do some research online into the demographics of the area:

· What percentage of the local housing stock is owner-occupied?

· What percentage of the local housing stock is privately rented?

· What percentage of local people are unemployed?

· What is the social grade breakdown of the area?

· What are the crime statistics for the area?

THE NEED FOR SPEED

When you get quick at this process, it should take under an hour – and you could even write up a procedure so someone else can do it for you.

It's not enough to make a definite investment decision on, but you should generally find it's thorough enough to decide whether to start really digging in.

Here are some other things to consider:

1. Title Insurance

Require title insurance on the property? – make sure you know who owns it and what is already owed!

2. Professional Paperwork

Use professional paperwork – Loan note or Loan Agreement, mortgage/deed of trust, Assignments of Rents, Deed in Lieu of Bankruptcy, Guarantee Agreement, etc.

3. Insurance

Verify with the insurance company that you are insured in case of a property or liability loss.

4. Value

Know the value of the security and the market conditions – evaluate at least annually.

5. Exit Strategy

Know your borrower’s exit strategy – sell, re-finance, etc.

6. Plan

Know what you will do if the borrower dies or walks away.

7. Key Man

Do you have “key man” insurance on the borrower?

8. Financial Health

Understand the financial health of the borrower – do you have any indicators that show the deal going bad?

9. Bankruptcy

Plan on the bankruptcy of the lender – know the cost, time, and who will do the actual foreclosure.

10. Draw-down Schedule

Use a draw-down schedule if improvement money is needed in the deal.

11. Taxes

Verify taxes are paid annually; unpaid taxes could wipe-out the loan.

12. Verify

Verify that any association fees, Factors fees or ground rents are paid annually and that they are up to date.

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