What Due Diligence does Property Partner do when Selecting a Property?


Rob Jones: In today’s question we are going
to be looking at the due diligence that Property Partner does when selecting a property. There
are going to be a whole host of things that people are going to be interested in when
they are looking at a property. We’ve touched on discount and yield in a previous video
but there is a lot more to a property deal, isn’t there, Rob? So, what you tend to focus
on when you are looking for the perfect opportunity? Robert Weaver: For me, it is best described
as a filtering process and so, we will get a whole raft of properties coming through
to us and we can assess these very quickly. We’re bringing all the years of experience
to bear, so, from even looking at the photograph, we can get get a very quick feel of the condition
and what the on-going maintenance is going to be. We still see properties coming through which
are non-standard construction. It’s just un-mortgageable. Rob Jones: Straight away, that’s not happening. Robert Weaver: No, those are, straightaway,
out. I have a sweet spot. I like properties which
been built between four and ten years. Before 10 years because they have still got an NHB
certificate on it. Four years… Because it takes about four years for the problems to
reveal themselves and be dealt with. There are still quite a lot of snagging with
new-build construction. I’ve seen a lot of that, from my days at RBS. There are examples
of developers struggling, they start cutting corners and it reveals itself, pretty quickly. So, that’s really my sweet spot. Or, I like
older buildings that have been recently refurbished. Because I’ve got one eye, all the time, on
repairs and maintenance, the expenditure and the net income, coming out of it. So, that’s
why we look at those. And then, we have got a very good portfolio,
here because we’ve been running around the country. My portfolios have been UK-wide.
Jim’s private property trust, he was the largest UK landlord, at the time. He was up in the
north, so, he’s got a very good handle, up there. I know the southern markets. So, we get a very good feel, straight away.
If something comes up in Manchester, we can say, these are good areas, that’s the wrong
area, don’t worry about it. We are filtering them down to a very small
selection of the ones we actually do want to go and spend time looking at. Rob Jones: Your wish list, ultimately. Robert Weaver: Yes, because we don’t have
a lot of time. Time is the enemy, here. I went to Sheffield, yesterday and that was
the entire day, to look at one student block. Rob Jones: Did it work out well? Robert Weaver: Yes, it is a good block. It
is priced where it needs to be. It is what it is. Whereas three weeks ago, I went to Sheffield,
again, another student block, a bad conversion, narrow corridors, narrow common rooms and
I thought ‘no’. Rob Jones: You wouldn’t get that information
on a picture or on a description on a listing, would you? Robert Weaver: No, you have got to see it.
And it looks like a sensible, nice-sized deal, a sensible deal. But on the ground, it just
didn’t feel right and the old adage, ‘you can’t beat kicking the tires’. And we won’t
buy the thing without having looked at it and pouring over it. And that’s the first
phase. So, we go through all that. We do the numbers
and make sure the numbers are right and that actually gets us to the offer stage. Then also, take, for example, student accommodation.
We then get our block managers to go round and do a health and safety assessment because
that is one of your biggest levels of expenditure. If windows don’t have proper limitations on
them, you have to put those on. There is signage and so on, fire alarm systems. What the vendor
might be doing isn’t what we will do, as a proper landlord. So, we do an awful lot before we get to that
stage and then, after the deal is agreed, then you get into legal due diligence and
actually verifying what they told you, to make sure that it is right. We have actually done some deals where we
have agreed on the price, put them on the platform, fully funded. So, all ready to go.
We have gone to do legal due diligence and, for example, there is a block in Southhampton.
In between agreeing on the deal, funding it and getting it to completion, he has gone
and let a number of flats to a… Rob Jones: The agreed owner had? Robert Weaver: Yes… to a third party operator,
which is almost like holiday lets. For me, when I stood back and thought about this and
thought, ah well, I can’t get a rent review, the reality of it was that I can’t control
the people who he’s putting, on a weekly basis, into these rooms. And this is for student
halls. For me, that was a deal breaker. Not the level
of income or whatever. It was just the sheer use he’d turned it to. It was no longer a
student deal. So, we walked away from that and that is the sort of thing we will do if
they don’t pass muster. One we are looking at is the Covenant and
if they don’t pass muster, we won’t do it. Rob Jones: Fantastic. So, a lot more due diligence
than your typical buyer might be able to do, from a physical time and not knowledge perspective,
when they are considering deals. Robert Weaver: And also, sometimes it might
not be a deal breaker and there is a solution to it, so, we might have a rent underwrite.
And actually, there are nuances after nuances and if you come to this from fresh, you think,
right… For example, we had a rent guarantee which
said, it grants a lease and pays the deposit, that’s in occupation. And I said, no, no.
Put that in the clause. I am taking actual occupation of the flat. So, actually, we are
in there. Because people can manufacture these sorts of things. Rob Jones: It’s the nuance. Robert Weaver: So, it’s actually just being
able to put extra wording in, to protect yourself. And again, that is what we do. Years of experience
to bring to bear on the whole process.

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