5 rules for offplan property due diligence

There is money to be made in offplan properties. That’s why crooks are everywhere in the industry. There are always so-called ‘investment opportunities’ that turn out to be worse than useless. No doubt, this summer will see lots of media stories about UK investors who have been fleeced by these tricksters. Use this five-step guide to assess opportunities on offer…

Apply the first rule of assessment – ask yourself ‘Is this opportunity too good to be true?’

It’s essential to remember that high returns and high risks go together as do low returns and low risks. Anyone who tells you different is either wrong or a con-artist. You simply don’t get high returns and low risks!

With offplan, you can save and make big money if you buy the right property, right place etc and can sell on as the market rises; or can find tenants (whether holiday or ongoing etc) who will rent the property in due course.

But there are risks, whatever might be said to the contrary! The risks are that you might buy the wrong property in the wrong location etc. The market may trip over itself and stop price-rising. The biggest risk – and it’s one that even bona-fide sellers will gloss over – is that you might find it harder to sell on or let on completion. Much depends on the supply-demand mix as always. If you have bought into a 600-unit complex, it doesn’t take a genius to work out what will happen to asking prices and rentals if 300 come on the market at the same time.

Here’s your bottom line - if a property investment offer sounds too good to be true, it almost certainly is. Walk away. These offers are always hyped-up so that they turn investors’ heads. They are designed to make investors think with their heart and not with their head.  

Spot an opportunity that’s ripe for a con – see if it’s a specialist or exotic offer.

If you live in, say, downtown Hartlepool and want to buy a property in that town, you should find it relatively easy to do so. You visit properties, drive around the area, talk to estate agents and will probably already know something about the buying process (mortgage lender, surveyor, solicitor etc).

But – and it’s often a big but – if you’re being offered the chance to buy offplan in Spain, join a consortium to invest in Eastern Europe or to purchase timeshare properties in the Mediterranean, you will almost certainly have little or no knowledge in these fields. Mix together the con-artist’s hype and spin and an investor’s lack of know-how and excitement, and there’s a successful scam.

Many con-artists pick ‘exotic’ opportunities because they are beyond the know-how of most people and this lack of knowledge can be turned to their advantage. If you don’t know anything about a particular field, your chances of success plummet dramatically. Whatever you are investing in, you should at least understand it, how it works, how you can profit, or possibly make a loss.      

Check whether there’s a bona-fide business behind the offer – ask some well chosen questions.

Can you see independently-audited figures? No business is going to reveal their own balance sheet to you, but it’s reasonable to ask for full financial details relating to the offer. You should be able to take these away and study them with your advisers at your leisure.

Can you have contact details for other investors who have bought in? Ignore glossy brochures and those written testimonials from ‘Mrs F-A from Blackburn’. They’re puff and potential fakes respectively. You want to actually talk to people who’ve been there, done that – and, ideally, you should be able to choose names from a list. It’s fair enough that some investors will want to retain anonymity but, if this is a genuine opportunity, there will always be some who will be talkative; not least to brag about how clever they are and how well they’ve done.

If the (potential) con-artist claims to belong to an impressive-sounding organisation, be endorsed by another well-known business or whatever, follow through. Get those phone numbers and call for more details – at it’s most basic, ring up such-and-such a professional association and ask whether “Spiv and Shyster” are members. And if they are members, do a trawl on Google to find out more about the association. Has it been running for years, does it have standards of entry – or can anyone join who’s willing to lay out £20?    

Identify a typical con-artist tactic – look out for the ‘sign now or miss out’ high-pressure sales pitch.

This hurry-hurry tactic is used when prospective investors are most enthusiastic and vulnerable to letting their emotions get the better of them. The con-artist plays on greed (‘here’s a great opportunity’) and fear (‘you’ll miss out if you don’t sign immediately’).

This is a key point – a bona-fide business with a legitimate offer will give you time to take independent advice. It’s as simple as that. The con-artist won’t. They don’t want you to apply logic and common sense or get a second opinion. Some will even tell you that it’s a waste of your time getting another opinion as your solicitor or accountant won’t understand it. The problem for the con-artist is that they will understand it only too well. It’s a con!                      

Apply the final rule of assessment – find out where the business making the offer is based.

If the business is in this country, and has a contact address, phone numbers, faxes and e-mail addresses, is registered here and is well-established and known, you are more likely to be looking at a bona-fide offer. You can go and view their premises, walk into reception and probably talk to key personnel.

Businesses based overseas are not covered by UK legislation. That doesn’t necessarily mean that they’re not bona-fide – but it makes it much easier for them to scam you if they are! In a worse-case scenario, you can drive to Brighton or Birmingham, stand outside and picket the property. You can’t do that so easily overseas.  

Be wary of UK accommodation addresses. Some overseas’ con-artists run their scams through accommodation addresses to give them a veneer of respectability. Don’t be fooled by 0800 numbers either – it’s often assumed that these are UK-based, but calls can actually be diverted to overseas’ destination. Always pay a visit to the business in advance.

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