IPHONE-NOV-2017 1875A big part of being successful in property investing is avoiding the traps which can snare the unwary or the inexperienced.  Here are four common risks or dangers to watch out for:

Bad Error 1 – Paying a non-refundable reservation fee too soon

As a buyer of a new property, you may be put under intense pressure to commit yourself to purchase “the must-have property” by signing a reservation agreement and paying over a substantial non-returnable reservation fee.

Convinced that you will lose out if you don’t accept in the short timescale given, you will often be severely conflicted.

You may be tempted to buy even though:

(a) You are unsure whether the property is a good deal;

(b) You are unsure whether you want to proceed at all.

Best practice is simple: when in doubt, back out. Make it a “No”, and stick to your guns.

That is something I failed to do just before the last property crash. I was offered a new build flat at a “discount” in a small block in a small northern town.

Deep down I had doubts at once – the location was not central and I was concerned about transport links.  Fearing that I would lose out as it was the “last unit left” – I foolishly stumped up £1,000 for the non-refundable reservation deposit, even though I had not completed my full due diligence checks.  (By the way, was it really the LAST unit?!)

When I did fully crunch the numbers, the figures didn’t stack up. On closer inspection, the anticipated rent was not realistic – meaning a higher deposit would be needed.  I calculated that buying was too high a risk and opted to pull out – forfeiting the reservation fee.

Bad Error 2 – Buying a property with someone else and not spelling out what should happen if it all goes wrong

If you buy a property jointly with someone else it is best practice to have a trust deed or similar legal document addressing potentially problematic matters such as:

  • The share of each party or owner
  • Responsibility for mortgage payments and other property overheads
  • When a sale should take place and how
  • What should happen in the event of the death of one of the owners.

In the absence of a legally binding document, or the agreement of all the joint owners, court proceedings may be necessary with resulting bad feelings, delays and legal costs.

Best practice is to pre-empt possible issues and provide for them in writing before the purchase.

Bad Error 3 – Failing to properly read the Report on Title

When you buy a property, you will usually receive a report of some kind from your conveyancer asking  you to carefully read and approve it prior to signing the legally binding contract. 

This document is typically called a “Report on Title” and deals with a range of important matters affecting your decision to proceed, including: whether the legal title is “a good marketable title”; key facts and issues with the purchase deed/lease; and key facts and issues with the property searches or enquiries.

It is vital that you read the report fully and carefully – raising any questions or comments with your conveyancer. Avoid any temptation to skim-read or, worse still, sign the report without reading it at all.

If the report contains facts, issues or nasty surprises which you miss or misinterpret due to your lack of due diligence, you will be bound legally and are unlikely to have any redress against the seller or your conveyancer for any loss you suffer.

Bad Error 4 – Buying without a suitable surveyor’s report

A fundamental rule when a buyer is purchasing  a property is “caveat emptor” or “let the buyer beware.” The burden is on the buyer to identify any defects in the physical state, structure or condition of the property.

It is therefore important for a buyer to carry out a suitable survey in respect of the property. The website of the Royal Institution of Chartered Surveyors (RICS) lists 3 types of survey:

Level 1 – RICS Home Condition Report
Level 2 – RICS Home Buyer Report (with or without a valuation)
Level 3 – RICS Building Survey.

The RICS Building Survey is said to be suitable for larger or older properties, or where major works are planned.

If you are buying a new property and don’t require a mortgage, you may be tempted to avoid the expense of a surveyor’s fee by not bothering to obtain a survey.  That is a high risk strategy and is not advisable.

If you are buying with a mortgage, and have any doubts about the valuation indicated by the surveyor instructed by the mortgage company, think about obtaining your own survey report – which you will be able to rely on with ease if at a later date you have to question the valuation.

Dalton Barrett
Rebel Property Coach

Read similar blogs here