It is needless to say that both legal as well as tax matters are of utmost importance to investors. Ignoring those aspects could potentially turn an otherwise very successful property deal into a nightmare for you or even land you in jail!
There are sales contracts to be drafted, tenancy agreements to be signed, and many various forms of taxes like income tax, capital gains tax, and so on to be paid. As legal and tax laws are area specific and continuously change, I cannot go into details here, but rather I urge to consult the lawyer and tax advisor in your core team BEFORE you make any major decision, as well as on a regular basis. Trying to save a few dollars might otherwise turn out to be very costly for you.
What Is THE Most Important Aspect?
When Street Smart University asked a panel of 30 leading financial experts what the best financial advice they ever received was, my response was: “Always do your due diligence and know what you are doing.” (Read the full article at www.streetsmartuniversity.info/30-of-asias-top-financial-experts-reveal-the-best-financialadvice-ive-ever-received)
Due diligence is a detailed investigation into the property that you potentially will buy, in order to confirm all material facts before you commit to purchase. The main purpose is that you show reasonable care in order to avoid bad surprises later on, such as the seller not owning the property, the developer not owning the land or is about to go bankrupt, or the council has given notice that it will take back the land to build a road or such.
On who or what should you be doing due diligence? Here are some recommendations (the list is not exhaustive):
On the seller
- Does he/she really own the property?
- If the seller is a company: Is the person you deal with authorized to sell?
- For new developments: Is the developer financially sound and have a good track record?
- Does the seller own the land that the property is, or will be residing on?
On the property
- Comparable properties nearby for sale/sold
- Is the title deed in good order?
- Are there any burdens?
- Is everything as promised by the seller?
- Are all certificates and licences current?
- Are there any turn-offs (e.g. electricity pylons, cemeteries, other disturbances)?
- Area around your property (good or run down?)
- How is the rentability?
- How is the future resale potential?
- Do you have experience in that area and market segment and know what you are doing?
- Have you involved your team?
Once you have completed your due diligence you have more confidence that you are doing the right investment and are avoiding potential problems in the future. It is time extremely well spent.
Good-Bye Before Hello
Another fundamental fact is that you should say good-bye to your property before you even buy it. You will need to be clear about your exit strategy and have at least two of them defined. In case your primary exit strategy might not work out as planned, for whatever reason, you can switch to your secondary one.
Exit strategies can include renting out the property, renovating and selling it, flipping it to add value, and then either rent it out or sell it or change the use (for example, commercial to residential or vice versa). Only if you have two viable exit strategies that work for you, should you proceed further.
The Property Apprentice Master, Jochen Siepmann, wants to share the wealth of his knowledge easily and effortlessly with you for FREE. Start your journey now to greater wealth through passive real estate income and capital appreciation with one, or all, of these FREE offers: