It can be done with Property
BY CARLO MARIANI, THEPROPERTYCOACH.CO.ZA
‘Accept more risk to get higher investment returns’ is a mantra we have all heard so many times; this is especially the case for investments in the stock market punted by the vast army of financial advisors working for the ever so powerful financial institutions. Can property investments escape this ‘rule’? The simple truth is YES. Yes, you can get higher returns with less risk when you buy your investment properties. And now I can hear you asking, ‘But how can I do that?’
There are three fundamental ways to achieve the ‘Holy Grail’ of property investing where you have high returns and very low risk:
- Empower yourself with property-specific knowledge
- Negotiate your right to a Due Diligence before completing the purchase
- Write an Offer to Purchase that protects you, not the seller or the estate agent
Empower yourself with Property-specific knowledge
Risk is the price we pay for lack of information and knowledge; having said so, even property can be a high-risk investment. This happens when you go ahead with investment decisions without understanding the fundamentals of supply and demand both at macro and micro level, as well as fully understanding all the elements of property ownership. Don’t do property superficially, without investing time and money in your property education; simply knowing that doing property is the right thing to do is not enough unless you want to either lose money or achieve very poor results.
Negotiate your right to a Due Diligence before completing the Purchase:
I often carry over my experience as a small-scale commercial property investor in my deals in the residential sector. And the main tool I use to do this is the contractual adoption of a due diligence process; the critical ingredient to this is that such due diligence is conducted after the deal is signed (hence I have acquired control of the deal) but before an irreversible legal commitment to complete the transaction is placed upon me. This is a great example of having the cake and eating it; it is essential that you have the necessary education and experience to leverage the power of ‘Subject to’ clauses in your Offer to Purchase.
The art of writing an Offer to Purchase:
There is no such thing as a standard OTP; within the boundaries of law, it’s all about what a willing buyer and a willing seller are prepared to agree to. One of the biggest mistakes I see novice property investors doing is to not delete, amend or add clauses to the OTP to eliminate risk from their property deals.
Here are three practical tips:
Tip #1 – Electrical Compliance Certificate
Insist that you, the Purchaser, and not the Seller, appoint a qualified electrician to issue a Certificate of Compliance (CoC); this will allow you to remove the risk of shoddy, if not fraudulent, CoCs that could cost you a fortune in electrical repairs and maintenance after you take ownership of the Property.
Tip #2 – Physical Expert Inspection
Always insert a ‘subject to physical inspection clause in your OTPs. The very small investment of appointing a professional Home Inspector is always worth it; should the inspection identify any unforeseen repairs needed, either renegotiate the deal or exercise your legal right not to proceed with the deal.
Tip #3 – Body Corporate Financials
Always insert a ‘subject to financial review of the Body Corporate financials’ clause in your OTPs; you shouldn’t trust what the Agent or the Seller tell you about the financial good health of the Body Corporate you are buying into. By implementing this Tip you can do your ‘homework’ after you have an accepted OTP and not before; this approach will save you from wasting your valuable time on too many potential deals that actually never materialise.
I share another eighteen tips on how to write a Profitable Offer to Purchase with our students at our Property Education Events and Courses.
I leave you with one powerful quote ‘While we ponder when to begin it becomes too late to do.’— Quintilian. It is time to take action and invest in yourself first and in property very soon thereafter.