What Due Diligence Should I Carry Out When Making A Purchase?

Here at Flambard Williams, our primary concern when looking at the many and various sites and developments around the UK is how safe will your money be if you invest in their project. This in our minds is key, and should be the most important factor to you. It’s all very well promising outrageous returns and a great growth story if the company doing the development goes bust. So how do we select our developers and their developments, so that we mitigate as much of the risk we can, offering you the returns that you want?

1. Track Record

This is an obvious question that we like to ask, or investigate. It is our job to look at a developer’s previous work, to see if their previous projects have been delivered in a timely manner, what issues there were if any, and if so how were they dealt with. It would be very unusual for projects of this magnitude to not have the odd problem or delay, but the key is how were these dealt with. For us as a company, we believe the true test of any companies standing is how they deal with you the clients when things become difficult, it’s very easy to be helpful when things are going well, it’s when they aren’t that you get to see their true colours. So it is our job to know that history and only select reputable developers that time and again deliver a great product allowing you peace of mind that we only work with the best operators in this industry.

2. Returns

This subject is one that I feel is most abused by the industry and one that most people will fall foul of. How often have you seen an advert for a property offering high returns, maybe only by 1-2% higher than others in the same city, or possibly more, but you as a client then use that as a measure by which you judge other developments in the area. The first thing to check when looking at these numbers is to determine whether they represent a Net figure or Gross. Clearly, there is a difference and we will assume you know that, if you don’t just deduct around 1.5% from the gross figure and that will give you a Net figure which is what you would receive before tax and mortgage costs. So how is it that these people can offer a better return? Well generally they can’t and it’s that simple. So that’s where we come in. We will avoid all developments that we feel will be unable to achieve numbers that we consider to be unobtainable. How is it that they can do this then? Well typically if a developer offers a higher return assured for a period there is a chance that he has simply inflated his sale prices so that he can pay some of that money back to you the client to cover any rental difference for that period, and when you are out of contract you find that the actual rent you can get plummets. So we recognise this and only take on projects that are likely to hit the minimums or in many cases exceed when they fall out of contract, as the developers that we sell for that offer this will cover it with either a bond or a cash sum that they deposit ahead of the project’s completion. Generally, we as a company avoid residential projects that offer fixed returns and only sell student properties on these terms as the developers involved in the student market work closely with the Universities so they know exactly what they will be getting from day one.

There is another reason for these variations in attainable rents and that’s down to the location of the development. It’s very easy for a developer to offer you great rates on a property that isn’t in the city, but on the outskirts, but again it will be advertised as minutes from the city centre, but is likely to be some way further. In cases like this, the property will suffer from poor demand leading to void periods and lower rents as people renting will always locate as near to the centre as their budget allows. So here at Flambard Williams, we know the areas that attract both clients and renters, recognise any potential growth hotspots through deep market knowledge and use all that to help you navigate what can sometimes be a tricky field. Remember, it’s our name that we trade on, and we want you the client to trust us and recommend us to friends and colleagues, and to do that we will only offer you projects that have realistic, achievable goals, at sustainable levels.

3. Location

This is less about where the site of the project is in a specific city/town, and more about what city, and part of the country? When choosing you a development we listen to your requirements, whether that’s a pure income model, whether you need a mix of income and growth or perhaps one where you just beat inflation but have a higher growth potential. So our job as an independent agent is to find you that unique property to your requirements. Obviously, we always follow the first two principles in this article, we never deviate, we choose the right developer offering achievable returns. If we don’t have the city/town that you have interest in then it is likely that we have not seen a development that we would like to market for the reasons we have already mentioned. If we are marketing a project, rest assured we have done our homework, we know the location and know that it is able to deliver on its promises. In the UK expect different things from different areas, South East and London have low percentage returns against high price entry, likewise the South West, North West with cities like Manchester and Liverpool expect medium to high percentage returns against medium price levels and areas like the North East, high returns versus low price entry.

4. Deposit Sizes and Payment Structure

This subject can and has been under debate for a while now. Generally, we will work with developers that require low deposits, typically this will mean anywhere from 10-30%. Why? Well initially developers would use clients monies to help finance a project, and this was very successful, but of late as these developers have become more established this need has diminished and with it the need for higher deposits. With that in mind we will now only work on projects that fit those low deposit criteria, and to add to that we only work with developers that protect as much of that deposit as possible. It is not always possible to cover off all the deposit that you put down, but we do tend to work with developers that can. This means that the risk to your monies is now very much negated, as we have attempted to completely de-risk the process.
There are still developers that will offer you a return if you place down more money, for example there are deals that offer an interest rate of say 4% against you depositing 50% of the purchase price, if we offer you a deal like this, rest assured that there is protection in place should there be any issues. We do not like to sell a development that will leave you and your money at risk, we follow a strict set of rules when choosing each project with offers like this, and that is always there is some type of cover for your money. If there isn’t then we will make you very aware of that fact, but generally, we are unlikely to make this offering if we cannot guarantee it.

5. After Sales

Again a very important factor for us when choosing every developer/development. How easy are they to deal with, do they deal with issues promptly, are they easy to get hold of. This has been a more recent issue for us as we recognise, especially as projects of old near completion, which companies are better than others at dealing with you our client. As a result, we have again reduced the number of developers that we deal with and only work with those that live up to our high standards. No matter how good a property is, if you have had nothing but trouble dealing with the after sales team, whether that’s you the client or us as your representative then the whole experience becomes one you would rather forget, and not in a positive way.

6. The Development

This is another very important subject and ultimately, what this is all about. Many of our clients want to know what their property will look like when it is finished, as many of the properties that we sell are off-plan, with their preview being glossy CGI’s. So how do I, the client know what I will get? Well, that again is where we come in. Clearly, we know the developer, they do repeat business with us so they are keen to maintain that good reputation. One bad project and their name becomes spoilt. What if they are a new firm to us or even a newcomer to the business? That’s where we have to do our homework. If we are approached by a new developer, the first thing our team does is visit other projects that they have done, whether finished or ongoing. Then we ask around our network, and rest assured if the developer has a bad reputation we will hear about it. What if they are new? Seldom is the developer completely new, they may have just never worked at this scale, but if they are we will take a look at the construction firm that the contract to do the work. Once we know that we can make assurances that the build we be of a quality that will hit the standards that we require, many of the construction firms in the business are known to us or our network, bad names do not last long.

So, how to sum all this up? The way we see it, it’s our job to make your purchase hassle free, and pleasurable, this is an exciting time. You are embarking on a journey that we would like to share with you, and in doing so we like to mitigate any risks that there might be, whether large or small. To that end we do all the hard work beforehand, working with projects that meet our criteria so that by the time you are being shown a particular development you know that we have asked all those awkward questions so you don’t have to! If you do we should have the answers!!



Further reading