One of the less glamorous but key activities that a sourcer undertakes, is carrying out due diligence on deals before presenting them to an investor. So, what does due diligence entail?
As with many questions, the answer is “it depends”.
There are investor clients that are happy to get a 1 line description of a property with value, as long as the Franchisee is 100% sure the property is off-market and available. In this instance, the due diligence is quite light, generally a quick check of the asking price against comparable properties, and depending on what type of investment opportunity it is, a look at rental value or build costs.
For some clients, their preference is to be presented with a full package of information enabling them to make an investment decision. In these cases, Franchisees will carry out detailed investigations of property values, rental values, get a builder’s quote, solicitor’s quote etc. This allows them to present all of the information required to enable an investor to make an informed decision. It’s key that the data provided is relevant to the proposed investment i.e. it is up to date, relevant and evidence-based. This is what makes our network invaluable. Having experts to hand that can give you a quick answer on a value or cost will help speed the process and ensure opportunities aren’t missed.
Out of all the investment opportunities that we see, due diligence is probably most important on development projects. This involves doing a lot of work up front, to validate costs, current and end values, timescales etc, to eliminate as much risk from a development as possible. This can be very time consuming, and costly, however it is hugely important to do this before committing yourself. Whilst it might be tempting to cut a corner here and there, it is always worth taking the time and spending a few hundred pounds to get an expert’s view on things, whether that is to validate costs, get an extra survey carried out or maybe a desktop assessment of potential sale values.
As I said upfront, this part of the work isn’t glamorous, but I feel that it is key to give the right level of detail so that your clients can be confident that when you present them with a deal, it is because you genuinely know it is a great one for them.
As always, I’m keen to hear your opinion on the blog or any suggestions on what you’d like me to write about. If you’d like to learn more about the day-to-day life of a property sourcer, check out our resources or get in touch at [email protected].