Investment property due diligence checklist

As an investment property company that has been trading for more than 11 years, we have learnt a great deal from our property investing experiences. We have made mistakes and aim pass on our expert knowledge so that you can avoid the hardship and frustration that comes from not conducting investment property due diligence. We hope you find these checklists useful. We explain what property searches are and how they form a part of the purchase process.

Research the comparables

Here at One Touch we provide an array of alternatives for investors to choose from. To conduct a market appraisal, sometimes called a desktop evaluation, is a fairly easy process. All you need to do is look use the appropriate market portals to quickly compare the sales and rental estimates that property developers are stating in their brochures matches what is being achieved in the local market.

Here are quick links to help you find rental and sales comparables for the various sectors.

Buy to let property: https://www.rightmove.co.uk/

Student Rentals: https://www.student.com/

Care Homes ratings: https://www.cqc.org.uk/

Care Home weekly income: https://www.carehome.co.uk/

Ideally you want to be looking for similar properties with 0.5 miles of the investment property you are considering moving ahead with. For a buy to let and student property you can look at the quality of the property, the year in which it was built in and the general condition.

For care homes, you also want to be considering the current rating of the operator and it is sensible to read some reviews of the current occupiers as it is not just the property but the service delivery of the company that is leasing the property from you, which will give you the confidence in the investment.

How much competition is there?

Since you are purchasing the property as an investment, your lon- term income and capital growth is dependent on the supply and demand of property in the local market. One Touch are experts in sourcing property investments in sectors which have solid fundamentals for capital growth and consistent rental income where the demand exceeds supply.

Can the tenant afford to pay you?

At the start of each new tenancy agreement, the lettings management company will conduct a credit check on the tenant and only allow tenants with a good credit history to rent your property. Student property has one of the lowest vacancy rates and for investors peace of mind, the parents sign as guarantors and larger deposits are taken for international students.

For care homes, the care home operator is taking a commercial lease from you. One Touch tend to work with existing operators of care homes that are fully operational where the existing income covers the net amount payable under the lease agreement. We visit each property (except during lockdown) and meet with the management team. We search companies house records to establish what the existing net income of the care homes is, and that the operator has a license and good ratings.

The lease is for a long period of time – typically 15 to 25 years. It would be important for the investor to continue to keep an eye on the operator’s company profits and ratings, from time to time, after they have purchased the property. One Touch are not asset managers and we do not conduct ongoing valuations of the property nor make any claim of the future security of the investment. We present investment opportunities that we have researched, and we encourage investors to make their own assessment of the suitability as we are not financial advisors. We are a property agency with a focus on investment property.

What is the likelihood of market changes?

One Touch have identified property sectors and locations where there is a robust demand and good fundamentals. Over a course of time, the dynamics can change. It is important to bear in mind that your choice of exit timing can make an impact on your profits. We have assisted several investors to resell their student properties and care homes. Those that have chosen to do so within 5 years of purchasing have sold at the purchase price or made inflation-beating capital growth. There are instances where new properties have been built in the local area – which increased competition – and the rental returns decreased, the owners had to reduce their asking price to be able to make a quick sale.

What are property searches

Once you have decided that you are interested in moving ahead with a property purchase, you will send in your authorised memorandum of sale (reservation form) and start the conveyancing process. You solicitor will prepare the report on title and conduct various property searches which are in place to uncover potential constraints and risks related to the property which may impact its future value.

Title deed searches

The UK Land Registry is an online record keeping system for title deeds. You solicitor will conduct a title deed search which confirms that the seller is the actual owner of the property and that the boundaries are as indicated on the sales document. The title deeds searches also uncover any obligations with regards to the upkeep of the communal areas and define the usage of shared parking. The permitted usage of the property is clearly outlined on the title deeds along with any restrictions or charges. It will also uncover if there is an chancel repair obligation to contribute to the repair of the local parish.

Water searches

Water searches will provide and outline of the sewerage systems in relation to your property boundaries and define the who’s obligation it is to repair public drains which may be located with the property boundary. The searches will also identify if there is any potential for flood risk.

Contaminated land searches

The contaminated land searches identify if there was any previous mining activity or hazardous waste which may have contaminated the land with toxic materials. Since we sell investment properties, the land contamination search would have been conducted by one of the first purchasers in a block of apartments, so it is not necessary for you to repeat the process. If your solicitor had identified that it was contaminated land from a previous search, they would be obligated to tell you.

Local area searches

Local area searches will outline any planning constraints in relation to the local conservation area. That will define what future alterations can be made to your property.

Electrical Safety Certificates and Energy performance certificates

Before any landlord can buy, sell, or rent their property they need to have an Energy performance certificate. Gas Safety Certificates has been mandatory for some time, but Electrical inspection and condition reports are also required since June 2020. The good news is that these certificates will be provided by the developers of all the new build properties that we market to investors along with a new build warrantee. For the care homes the operator is responsible for these elements as per the lease agreement.

Conclusion

We are often asked how long property searches take and how much they cost; the process normally takes two to three weeks and costs typically range between £100 and £250.

We trust that you have found this information helpful that the checklist for investment property due diligence helps you take a decision with confidence and ease. We have outlined the steps that recommend you take when evaluating any investment decision. We are not providing financial advice, you can choose which options are most suitable, One Touch empower you with the knowledge and provide a range of attractive properties to invest in.