Too good to be true

With many estate agents reporting a slow down in transaction levels there are an equal number of property investors who believe that 2019 will be a year of opportunity to source out a nervous seller, a fed up landlord or some BMV opportunities.

My lesson for this month is that whilst it is fabulous to land a property bargain, you should be aware of those opportunities which may not be as they first appear.

Recent research shows that property fraud in this country is on the rise with the cost of attempted property fraud amounting to more than £130m last year. This figure is likely to increase and therefore investors need to be extremely vigilant about fraudulent investment property schemes.

To minimise your risk of failing foul is to ensure that you undertake proper due diligence on every deal you consider, particularly the origination of that opportunity.

Property Fund Investments.

GDPR has meant that firms should not contact you out of the blue however I understand that this does still go on. If a company does contact you, before you agree to anything, you should do some research into the company. As well as company due diligence take a thorough look at the opportunities they are offering. Through searching online, you’ll hopefully be able to identify whether these companies already have a reputation for scamming people.

Land Banking Opportunities:

This scam typically works where an area of land is shown with an artists impression of what it would look like with a housing development on it and then individual plots are sold, often through the auction houses, at low prices with potential “hope value” for development. Just because a pretty CGI has been created showing a development, does not mean that planning will be granted. Indeed some of the schemes I have seen are on land in Areas of Outstanding Natural Beauty, Green Belt and other areas where development is highly unlikely in the short to medium term.  In addition it is worth checking via the Land Registry the ownership details of these plots as I am aware of one operator who tried to sell plots of land that they didn’t yet own themselves.

Not all land banking is necessarily a scam, but you need to make sure that you know any restrictions associated with developing the plot of land you are buying before you hand over any money.

Property Sourcers:

There are many superb sourcers around who provide a superb service to investors through their connections into their local markets. There are others who simply present deals which are readily available on the open market and charge a hefty fee.

The answer is to undertake due diligence on any deal you are offered. Speak to local Agents, have a look at the online portals and get a real understanding as to whether the property is coming to you at a discount or whether you are in fact paying a premium.

Guaranteed Rents:

Some new build and newly converted properties are offered to the market with a guaranteed rental for the first 12 months. Whilst an attractive proposition, you need to ensure that this does not mean that you do not undertake your research in terms of what the true rental value is.  I have seen schemes where the developer is offering a guaranteed rent of £1000 per month, which helps to underpin the asking price, but where the true rental is £600 pcm. Get this one wrong and you could, after the rent guarantee period, fall foul of your lenders requirements and also find that you have perhaps overpaid for the property in the first place. This issue can be further compounded if several owners decide to sell at the end of the rent guarantee period when they realise the market rent is significantly lower. Several properties in the same development on the market at the same time can have the effect of reducing prices, therefore increasing your loss even further.

Identity Fraud.

This is an increasing problem especially for properties that are free of any mortgage. I suggest that you ensure that your correspondence address is up to date with the Land Registry and that you sign up to the Land Registry’s free Property Alert service which can help you feel more secure if you think your property could be at risk from fraud. Once you are signed up to the Property Alert service, you can monitor your property and get email alerts when any activity associated with your property occurs.

I wish you well with your property endeavours however please remember, if it seems to good to be true….