Here’s an episode that nobody wants, yet everyone needs. Trust me on this.
I maintain that if we need to master one single skill in this business of ours, it is to master the disciple of undertaking proper due diligence.
Understand the difference between research and due diligence, some of the lessons I have and continue to learn, as well as how to avoid this business making us cry at times too!
Grab a copy of my checklists and make them your own. Tune in for one of the most important topics of the year so far.
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Transcription of the show
Here’s an episode that nobody wants, yet everyone needs. Trust me on this.
I maintain that if we need to master one single skill in this business of ours, it is to master the disciple of undertaking proper due diligence.
Understand the difference between research and due diligence, some of the lessons I have and continue to learn, as well as how to avoid this business making us cry at times too!
Grab a copy of my checklists and make them your own. Tune in for one of the most important topics of the year so far.
Property Chatter
Welcome to the property voice podcast helping you to navigate safely through the world of property investing, get the lowdown and updates, insights and outcomes on all matters property with a splash of entertainment along the way, the property voice, a voice to trust among the crowd. Now, let's get started with your host, Richard Brown
Hello, and welcome to another episode of the property voice podcast. My name is Richard Brown. And as always, it's a pleasure to have you join me again on the show today.
trust but verify. Yep, that's the subject of today. And thank you for everyone who wrote in insisting that I cover the topic of due diligence. Yeah, that's actually none of you. Nobody contacted me. After the mentions, I gave it over the last couple of weeks saying I was thinking about doing an episode on due diligence. And I was putting it off and putting it off covering other topics. And I said, if anybody wrote in, I would cover the topic. Nobody did. But you know what, I'm going to do it for your own good, which is for your own good. All right, so stick with me here, I'm going to try and make it as painless as possible. And you will thank me later. And if you don't thank me later, you will be having these words ringing in your ears, perhaps at some point in the future, as you're probably going to find out either for yourself or through my own experiences, at least. Now, if all goes well, and you also hear Nina who works for me is my development manager, give the the Russian version of trust but verify Wi Fi trust, but verify.
So I'm going to have a little girl myself, it's Don't worry. I know probably I did not pray and probably completely ruined the Russian version of that. But But here's the thing and trust but verify became famous as a quotation or a saying that Ronald Reagan, the former US President gave roundabout in the 80s clearly when he was US president and a lot of people attribute that quote that quotation trust but verify to him.
But actually, when I looked at the source of the or the origin, rather, of the of the quotation and where it came from, in fact, it is based on a Russian proverb. And, and a guess, you know, Reagan was quite smart fellow, actually. And he probably, you know, they're going for the Cold War at the time. And he probably looked out for a, a Russian saying or proverb that he could latch on to, to help with relations, or to make his point, politically, etc. But I'm sure the irony was probably not lost on the Russians, perhaps, or maybe it was lost on the Russians, for him to pick up on such a Russian proverb in the dealings that he had with them. So don't know what they made of it. But that's where it came from. And what does it mean? I guess it means that, you know, we, we obviously, we need to go forward, we can't just, you know, live in a little under a rock and not venture out and be afraid of everything.
The Big Bad world is out there. But so we need to venture out there. I don't know why. But I've got funding pneumo just there's a picture in my mind at the moment. You know, Finding Nemo going out and venturing, despite maybe the big sharks out there that are going to eat us is quite a lot quite a parallel, isn't it to property in many ways. So yeah, thanks for Finding Nemo popping into my mind. Now, unexpectedly, you can tell this isn't scripted guy. But you know, trust. So trust, yes, we need to trust people. And, and mainly people, but it's also corporations, which consists of people essentially, and we need to trust but we need to verify what people are telling us. And that is the moral of this particular story. So hopefully, by the end of it, if you haven't already got it, then you're going to get it.
So I think, you know, I like in due diligence to peeling an onion. And I did actually write this this the December article for YPN magazine is also by the same title trust, but verify for so I'm going to overlap a little bit of the content. So spoiler alert, people who read my column in YPN. Yes, you're going to hear a little bit of that reference in this podcast episode and vice versa. But I'm going to add some different elements in just to make it a little bit different. But in that particular article I did talk about the the process of due diligence is much like peeling an onion. In other words, there's layer after layer after layer just as there is with an onion. Now I did also make the corny dad joke for you know, it can often make you cry. Well, the reality is if you don't peel the layers of the onion, in this case, it will make you cry, where it actually in cooking or you know obviously preparing an onion, that it's it's actually the process of peeling the layers or chopping the onion which will make you cry, in this particular case.
Not chopping it and not feeling it, well, that will make you cry. And what I mean by that is, if we don't do thorough due diligence, then we're may end up paying a price later on.
So something to you know, it's if I could say, we only, you know, Master one skill in this business, just pick one, it would be this master the skill of undertaking adequate and thorough due diligence, that would be it, that would be my number one. I've thought about it long and hard. It isn't about being creative. It isn't about picking the right strategy. It isn't about hustling. It isn't about, you know, just putting yourself out there, it isn't about mindset, actually, it's about due diligence. And due diligence is making sure that you you take the right moves, and you don't come unstuck in making them. And it's gonna, you know, I think, in investing terms to talk about protect the capital protect the downside at all costs.
But of course, you know, if you're any kind of entrepreneur, if you're any kind of investor, there's going to be risk. And with risk comes reward. So we need to venture out. But you know, at the same time, making sure we've got adequate protections in place, and that protection comes down to us. So we are responsible, ultimately, for everything that happens to us, in our investments in our property business in our life, actually, just do extend it into the psychological realm. But you know, we're responsible, and so it rests on us. And the biggest responsibility of all, I can not stress it enough, if you're not picking up already, is to undertake for due diligence. Well, and a lot of people talk about research, and due diligence, and they do go hand in hand. But they are in fact distinct and different. So I'm just going to read it out. So research is a general assessment of a market service and or potential service providers to arrive at a short list to select from.
Whereas due diligence is specific analysis of a property or service provider in order to arrive at a clear investment decision or service provider appointment with the chosen selection. So in other words, if you can imagine it's kind of a funnel, researches at the top of the funnel. So it's gathering information, collating, you know, condensing it into a central place to produce a shortlist essentially. Whereas due diligence is to take that shortlist and drill down deep, and to make a final and help make a final single selection in the area that we're going in. So due diligence, you know, research goes wide due diligence goes deep, I guess, is probably the summary, I would give at that particular point.
So there is a distinction, don't get trapped into thinking if you've done research that you've done due diligence, or vice versa. Both are actually necessary skills. But I would say the one that is most necessary is due diligence, to actually you can have a choice of one and have a binary choice, yes or no, that if you do adequate due diligence, you should be protected as a result of that. So you can't go far wrong by being good at due diligence, even if you haven't got adequate research in place, but because it's best to have both. And of course, why am I laboring this point, and laboring it because in the high ticket world of property, there is you know, there's a lot at stake, frankly, there's a lot of money around involved in property transactions, property partnerships, property dealings. And of course, you know, there's people who want to get a piece of that action, if you like. And some people perhaps a little bit more unscrupulous, and others, they, you know, don't necessarily have the right ethics, or perhaps they just motivated in different way or see the world in a different way.
And they just want to present information to us that we have to, you know, to vet if you like and qualified to make sure we make the right decision. So there we go, I think I've laid the point in terms of the introduction as to the importance of due diligence, but I really did want to label it. So Nate now want to do is give you a couple of tools, really, to help you with the ggV diligence process, should be easier to say shouldn't probably why people say research, it's easy to say the due diligence. So I think, you know, in terms of the layers of the onion, at the very basic level, I'd say there's three layers. And I break this down into what I call the spa model, s p a spa model. And that stands for stakeholders, property and area.
So you can't really forget that, can you? So if you start at the outer area, stakeholders, and you move in property, an area probably actually goes the other way area, moves into stakeholders moves into property. Now maybe I'm going to talk about them in reverse order.
No, I'm not going to talk about them in that in that particular order. So if we talk about stakeholders, the stakeholders really
Somebody who could be involved in our property transaction. It's anyone and everyone that could be involved. So of course, this could include professionals that could be solicitors, accountants, brokers, surveyors, project managers, quantity surveyors, etc. It could be trades people. And I think at one point I did it I did a sort of a rough list of the, the 14 I think it was 14 types of trade that could be involved in and a fairly vanilla single leg transaction from, you know, carpenters and bricklayers and plumbers, and electricians and carpet fitters, I think it must have been twice.
But, you know, you get the picture could be, you know, several trades that are involved in our transaction. And then I guess you've got different types of agents, you could have a letting agent, a sourcing agent, an estate agent, of course, we've got, we've got people to stay in the property. So we could have a tenant or a guest, for example, depending on what type of strategy we're adopting. And then I guess we've got, you know, partners, partners is a bit of a catch all phrase, which could literally include Investment Partners, it could include lenders, business partners, service providers, trainers, and mentors.
So there's different types of category within the stakeholder setting, and we need to have due diligence, you know, steps put in place to be able to, to vet and verify all the people that we're getting involved in. So, yeah, it kind of sounds like a lot, doesn't it, that we could be involved in. So I think what's important is to verify the credentials and the claims that are made independently as far as possible. And, and just to give you an example, I was dealing with a contractor recently, so that's in the area of trades, I guess.
And they provided references, they talked about their experience, you know, they just talked a good game, essentially. And I'm going to be honest with you, because the way to really convey this message is to reveal some of the mistakes and pain points that I've had in my life, and my business dealings, which will maybe help you to avoid the same ones, and maybe just put you a little bit on notice that you ought to go through some of these steps.
Because if I can make these mistakes, then surely you can make these mistakes and come a Cropper as well. So needless to say, I had a recommendation of this particular person, I had two people that I trust, who actually sounded them out to this builder out and said, yeah, it seems a really good guy.
Happy to work with them, you know, local locally, base, well connected we need in this particular case, it was it was a conservation area. So specialized in conservation had had previous dealings of dealing with projects could even show me as literally standing outside property and pointed at a property opposite that it worked on, really did talk a good game, everything seemed fine. And yet, there was one simple step that I didn't take, that if I did take would have raised a red flag at the time. And you know, what's coming, I didn't take that step, I didn't raise a red flag, and therefore, I didn't dig any deeper, because I wasn't aware of it until it was too late. And so somewhere down the line, this particular, you know, contractor kind of turned on me for once of a better description. And ran about mid September, was telling me that the two projects that he was responsible for would both be delivered on budget. In fact, actually one of them would be delivered below budget. So one was going to be on budget one was going to be below budget, everything seemed absolutely fine. And we just carried on and that was about mid September.
Fast forward, not that long, two to three weeks later. And I had a bit of a surprise. On one of the projects, I was asked to pay an extra 20,000 pounds. Now it was 150,000 pound quotation or estimate for the work. And I was asked to pay 20,000 pounds. Now we're about 60% into that particular project. And two to three weeks pre previously, I've been told we should finish on budget. So know what really happened in that couple of weeks. Nothing significant. Nothing earth shattering really happened. I was like what what's going on here then. And coincidentally, the second project was still forecast to run. It was actually on the revised budget, which was in fact a cost saving. So okay, so one budget one was going to go a little bit above budget. Okay, it's bit more than 10%, isn't it? But and the other one was still gonna be running under budget.
So it's probably you know, maybe, maybe 10,000 over on two projects. Wasn't too much of a disaster, I guess. But the alarm bells started to sort of ring a little bit Well, how could the Tell me two to three weeks ago that was going to run on budget and now it's going to run over budget and there was no rationale. There was no justification. It just was what it was. It is what it is, is what I was told, and asked to accept. Needless to say, my project managers when And had a conversation with the contractor, and was that we're asking him to produce a remaining programme of works costed to justify the extra 20,000 pounds expense. And in doing so, they were essentially I don't know what a better description identified savings and or you could say, identify the areas he was overcharging us. I'll give you an example.
He had an estimate of supply and fit of fire doors in this apartment conversion or conversion into apartments that we were doing. And there's quite a lot of these fire doors. And we I asked him well, how much would a fire door cost about 25 pounds? How much would it cost to fit about 75 pounds? Isn't that sort of facility 100 pounds to supply and fit vitals. And yet he had 400 pounds to supply and fit five doors. And when I tell you there are 20 of these, obviously that was quite a significant money, quite a significant variances figures.
So we managed to Nick back about 6000 pounds, needless to say, by saying we've just told us it's under pounds to supply and fit via doors, you quoted 8000. So that's 6000 saving, however, the 20 and that that exercise are repeated on a couple of occasions if you like, and we managed to get the 20,000 pounds down to back to budget again, we will happy also we thought anyway, this particular contractor decided to come back again. And what he did this time is the second project which was delayed was forecast to go under budget and even at the latest round was said that he would run at a budget.
Lo and behold, we had another request for 20,000 pounds of extras there. So we looked at 20,000 pounds on the first project, only for it to pop up on the second project. So you can see what's going to going on just wanted 20,000 pounds from us, right. So past for 20,000 pounds on that one. And again, you know, it wasn't easily justified, let's say and not to mention two to three weeks before there was going to run on a budget. Even you know, within one day, it was still going to be running at the same sort of level. And lo and behold, we were hit up with a request for more cost.
Not only that but on the first project, not this 20,000 pounds that the contractor came back and asked us for they in fact up that request to 14,000. And without, you know, willing to entertain, you know, the breakdown of how that was made up. So we've suddenly gone from mid September, everything's going to run on project, sorry, on budget, two to three weeks later, early October 60,000 pounds worth of extras. I don't know where. And we're scratching our heads and trying to figure out what is going on? Well, you know, longest view, you could look at it whichever way you want. Perhaps they were managing the project costings badly, perhaps they were just greedy, perhaps, you know, whatever.
You know, they were just running into financial difficulties. And we were seen as a way out for this. So yeah, I'm not going to bore you with the whole story. But needless to say, we actually had to remove this contractor from the project because not only did he refuse to bring the costing down, he became cantankerous to deal with awkward, quite aggressive, just refusing to cooperate, really. And so we just thought the best thing to do was to move on.
Now, here's the thing, and I'm making the point, I'm telling you all of this, so that you understand what could have been avoided? Well, that red flag that I told you about was his company background. And normally, I would say, look on Companies House, look for the individual, their company will look for the company, then look for the directors, and then search on the directors and look at their other directorships. That's just something I would normally suggest it's in my due diligence checklist, no less. And I didn't do it. I didn't do that. And I did it. In you know, out of curiosity, really.
So what happened here? I'm trying to learn now. Okay, now I'm trying to learn. So something happened, trying to learn how could it have been avoided. So I went back through the process identified really, that I kind of put a lot of trust. Here's the key word. And in this individual, and also because of the recommendations or referrals, the opinion, if you like, people close to me, and I didn't take all of the steps I should have taken as a result of that. And needless to say, over the last sort of decade, let's say that this individual has had multiple companies that have gone on for about two years and then have been suddenly dissolved. And when I looked into the businesses, which is something you would do in that situation, why is that you just ask questions. I'm not saying it's untoward. But it's just something that you would follow up on. Well, why is that? Well, there wasn't. There wasn't a lot of history of heavy losses.
As far as I could see, there was one business that made a minor loss, but the rest didn't really seem to find any accounts actually. Really, so there was no real audit trail in that sense. But that in itself is a red flag. And so you can almost imagine a scenario, somebody sets up in business, they have a couple of years of trade. They're either, you know, don't produce their accounts or they're overdue on their accounts, and then they dissolve company. And who knows what's going on, that's not visible to the public. You know, for example, they could have run up losses, they haven't filed accounts, they haven't paid the tax and VAT they perhaps owed people money. And they folded the business and then a phoenix stick in a new disguise two years later. And I know that I know that. And yet, I didn't take that step. So I'm being very vulnerable here. And I'm admitting a mistake. And it's Holbein due diligence checklist. But I'm telling you, just so that you're aware.
So there we go. I just actually put that mentioned due diligence checklist Now a couple of times. So if you want a copy of my due diligence checklist, just ping me podcast at the propertyvoice.net, I'll share it with you. The only warning I would say is make sure you follow it. That's it, you probably learned from my mistake, we're going through a bit of pain now in terms of dealing with this particular contractor. But I kind of just wanted to make that point. So. And equally, perhaps if you write in, I'll also share a copy of the YPN article with you as well, because it goes into a bit more depth. Because I've told you a long meandering story about the contractor, I probably don't have time now to tell you about that in this particular case.
So why not bring the day that stakeholders? So we're talking about the spar model, s s being stakeholders? Well, the P stands for property. And in this particular case, I also have a checklist. Now I have a checklist about the criteria that I am looking for in any given strategy. So my criteria does vary. So if I'm looking at a vanilla buy to let it varies from a commercial conversion to an HMO to service accommodation type of project, I'm now involved in multiple types of strategy, multi multiple types of project. And in fact, in several countries, let alone location. So I actually have to have checklists, if you'd like to make sure don't make a mistake. And people like Warren Buffett and Charlie Munger, some of the greatest investors of all times, they recommend highly having checklists.
So yep, I've been I've been I do have them. And most of the time, I do use them. And what they do is they, they just remind us what our criteria are, what are we actually looking for, and they help us therefore to avoid slipping into emotional decision making or subjective bias, you'd argue that the any bias is the enemies, enemies, the investors enemy in chief. And so if we can avoid those by being very pragmatic, very objective, less emotional, less subjective, then it's going to help us out as an investor. So have a checklist, what are you looking for, and I just have a couple of
By the way, there is not such a thing as a perfect investment, there is not such a thing as a 100% score on my checklist, I don't think I've ever had 100% score. So there's always some kind of trade off with any type of property, any type of investment. So don't expect perfection, but equally, you know, have a checklist and have some sort of grading system so that you can quantify, you know, decision making. And of course, some elements on the checklist are more important than other ones, some are even non negotiable, let's say that. So I think of labor the point of having a checklist with your criteria in terms of the property and, and to make sure that you know, you adhere to that.
And just as a little bit little sidebar there, I've got a friend of mine, and he's, he's actually he's an expert, he's, he's been working and while obviously living and working in the foreign country, and he's going to probably relocate next year. And what he wants to do is just put a put a foothold in, in the countries working in perhaps for long term presence, and have a long term investment in that bit in that country for the future. So he's been asking my advice, really, what what, what should he do? How should you go about things? Of course, he's a friend, I'm gonna, you know, going to help him out. And we've been having these conversations, and he talked to me the other day, and he said, Well, initially when we were talking said he wanted to invest in a certain location, and he had a certain idea in mind what he wants you to achieve. So he didn't want to project for example, he didn't definitely didn't want to do that he just wanted by a decent investment, minimal works, gonna return a certain amount of money, fairly hands off passive investment, given that he's gonna be leaving the country.
And so the next thing is he's, he's engaged a couple of people to help him to find these, find some properties and, and they've introduced him to something which is out of area, perhaps needs a little bit of work, and he's got this discipline. This promise this lure of like, well, in a year, you can have a significant increase in your investment based on what? I don't know. So he ran it, you wanted to speak to me about it, we had a conversation over the weekend. And basically, the conclusion was, well, what are your criteria? And I asked him, What are your criteria and he rattled them off? I said, you've got those written down? And he said, No, that's okay. That's the first thing you need to do. Write down your criteria, and then compare it with what you've been presented with, does it match? And he said,
No, it doesn't. But you know, I'm kind of being drawn towards it because of the persuasiveness if you like, of the person who's presenting him the opportunity. And there we go. So it's, you know, it's about knowing what you want to begin with being crystal clear on that following an objective process, not a subjective process. And, and then, and then sticking to guns, really, unless there's a very, very good reason why, and then take your time, if that's the situation. So I'm not saying necessarily the alternative investment was going to be bad. But it was definitely not what he was really looking for.
So I think you need a very good reason to be able to change his mind. And of course, what he did is he spoke to me, which brings me to my next point, which is to bring in specialists or experts or wise people, wise counselors, if you like to help you, in that respect. So with the property that could be a survey, for example, and, you know, I'll give you a quick example there where perhaps I'm being caught out, and which might help you. So I have actually bought property without having a full survey done. And, you know, on one occasion, I bought property, which isn't it isn't a conservation area and had some windows being replaced. I didn't know this until later, but hadn't got the necessary consents.
But it wasn't really picked up had evaluation, but it wasn't picked up at a survey. And then the the, the sellers, the vendors, if you like, they produce their information packs, no mention of any window replacement. So it wasn't picked up through the legal process. It wasn't identified through the valuation process. Bear in mind, I employed and the lawyer I employed a valuer. And yet, nobody picks up these windows. And then because we realize the Conservation Officer company undergoes these replacement windows, they're not compliant. They need to be box sash, but they're not POC sash, these are upvc, you need to replace them. Yes, I need to replace him because I'm now the leader of the property. And, of course, I'm backtracking trying to find out what, what How did this happen? You know, how has this happened. And long story short, because it wasn't easily traceable. I've tried lots of ways, by the way, we know that they did it.
But they've covered their tracks. They being the previous owners, they've covered their tracks, obviously, they didn't disclose it. We even know who supplied the windows, we know who supplied the windows, but we cannot get any written evidence that they were supplied under their ownership. And so yep, it's a tough one. So they deliberately, in other words, duck the system, and indeed pass on the responsibility to us. So not a nice feeling, run about 20,000 pounds worth of Windows is what I'm having to deal with, at the moment, haven't given up. I know who supplied the windows. And yeah, just watch the space.
But I just wanted to let you know that that can happen. So word of warning property, not just have a checklist, but usually bring in specialists and you know, be very thorough, be very diligent in your due diligence when it comes to the property itself. So we go that's p v day, not by the day. And then we have the A so the A in the spa model, A stands for area. So some people they know where they're gonna invest, because they're gonna invest probably where they live, or possibly where they work, there are two obvious choices. But if you live in work, let's say in a high cost area, low yield area, maybe that's not the best idea for you and the best use of your money. So a lot of us tend to look outside of the area that we live in, and or work in to get better investment returns. Of course, that takes us into unfamiliar territory.
And so how do we identify a decent area to invest in? It's one of the most common questions I get asked, actually, is how to identify an area. And I would say this, I've got two simple models that I tend to use to help identify an area. It's not as simple as this, but this will help cover off 80% of the ground that you need to cover.
And those models are the big three and the star criteria. So I'm just going to take you through what they mean now. So let's start with the big three. So the big three are just really three things that you can look at to help you when you're doing your area of research and due diligence and to narrow down the areas. There's something like 200 or more decent sized towns and cities
In the UK, so that's quite difficult to narrow it down to one. So how do we do that? Well, the three will give you a clue. So the first one is population. So people, in other words, where are people hanging out? Where are they congregating? So we've got, you know, some relevant points with regard to people, we've got the overall size of the population. So a catchment area. In my own personal case, for example, I'm usually looking to invest in a catch in a population sort of, urban area, let's call it that, of or, you know, let's call it an urban area of at least 75,000 people or more. So, you know, if there's less than 75,000 people, for me that suggesting that maybe there's there's not so much demand for property, I'm looking mainly not just on that rental, but also sale point of view here. So, you know, maybe there's not so much demand, not so much, you know, activity. And so, you know, it's it makes it harder to get predictability in terms of the data as well, for that matter. So then I have a minimum cutoff size, it used to be 100,000, it's now more like 75,000. And see color is a flip, I can probably do a flip in a lower population area and a candidate for rental. So that's the first thing overall size.
But the next thing is this is really important. look at trends, population trends, growth trends, net migration, population growth, etc. Look at those trends. And there's quite a number of sources. I'm not going to reference them all here, but I'm sure you can find them about potential growth trends historically projecting forward, if you just look at the housing plan, usually on the local authority website, they'll give some clues about housing demand, different types of 10 year over usually the next decade. So that's something that I look at. So if you're going into a decent sized area to begin with, and you're going one that is trending up or not trending down, then you're going to do all right. So that's the first one.
The second one is, is buyer or tenant demand, obviously, depending on your exit strategy. So if you're flipping by demand if you're renting tenant demand, so I'm looking at this. So there's a couple of things that you can do here. Normally, I look on the portal, so it's Rightmove and Zoopla, principally. And I just look at the distinction between the properties available for sale, let's say if it's flipped, or for rent, if it's rental, and I click on that little button that says let you know, include or exclude sale agreed or let agreed. And I look at the disc difference how many properties are in that particular location, of course, you can expand the location to as large as you wish. So we're looking for the general catchment area around that particular property.
So, you know, usually a postcode area within a quarter of a mile ideally. But perhaps you can extend that location just to kind of get a feel for the relative supply and demand. Now, when you first do this, you'll go Okay, well, there's 8080, including letter grade, and there's 60, excluding letter grade, what does that tell me? Well, the best way to interpret that data is to repeat that same process in different locations, then you've got a comparison, you've got a benchmark. So that's the nice thing, I'd say, I'm not going to go into too much details, because I recognize I'm running out in time. And then the other one is to look@home.co.uk, which is a great resource. And the reason I look@home.co. UK is for this, it has the average time on the market statistics. So you can have this time in the market for sale, average time on the market for rent.
And that tells you how sort of hot a market is. And I typically say, if the average time is you know, 120 to 150 days or more, that's quite a cold market, that's for sales. If it's 60 days, 45 days or less, it's a really hot market. So I'm looking I usually I'm looking for the sweet spot, or what I call the Goldilocks, you know, area, not too hot, not too cold. And that's probably somewhere between 45 and 60 and ran about 120 250. That would be the sort of benchmark that I would look for. So there we go, tenant or demand. And then the third of the Big Three is price and rental movements. Where are they headed? You know, so you what you're looking here is trends. So you know, your trend is your friend until he turns against you, of course.
So obviously we do get, you know, ebbs and flows in terms of trends. But ideally, if you can catch an upward trend, or at least a static trend, then you should be okay in terms of choosing your location, ideally, pick an upward trend, of course, so what am I saying here, which we're looking for prices or rents are trending upwards. Of course, you could be a little bit contrarian and go for something that is either trended down or is it the bottom and might pick up. So I'm not going to drill into that too much in this podcast episode, but that is something of a skill that you could
Develop, but you kind of need to have your wits about you to make sure that you are picking up the right, the right trend information and that you haven't just picked up a dog of an area, that's going to let you down and just going to keep going down, down, down.
So there's a big three that can be useful in terms of assessing an area. And then getting a little bit sort of more micro once you've got in the area so that the big three helps you identify a shortlist of areas. And then this next one, the star criteria helps you sort of narrow it down a bit further. And the star criteria, it's a mnemonic that spells out star clearly. And that stands for schools, transport, amenities, and revenue.
So these are just, you know, something to help you really narrow down the search. So schools, it's relevant for a lot of people.
Obviously, if you're letting two students, then schools include universities in this context. And if you're letting two families schools is very, very relevant, you know, good schools are a pool, they will pull your property upwards in terms of demand, potentially rent or prices. So you're looking for decent schools in the area and the catchment area of your particular property. So always look at the school ratings. This is of course, assuming that, you know, people you're targeting people where some sort of academic institution is relevant. So usually schools or families, course, if you're looking for young professionals, it's not quite so relevant.
So you can then maybe go a little bit counterintuitive, and avoid the sort of a high school catchment area or the university locations potentially, if you're targeting young professional, so you can apply a little bit of judgment is what I'm saying. So S is schools, and the T is transport. What I mean by that, well, usually I'm looking for the property to be within 10 or 20 minutes, so the nearest appropriate transport connection or town center. So town center that be how long would it take to walk into town. And if it's more of a commute, I'm looking for, you know, depending on the tenant profile, or the buyer profile, it's a train tram or bus station, or it could be a major trunk road if people as a commuter town, for example. So I'm looking for how accessible it is, and how connected is this property in terms of transportation links. There's another type of connection, which is broadband, but I won't mention that at this point in time.
So that's the T. Next one up is the amenities. And what I mean by amenities is shops, bars, restaurants, banks, post office, healthcare facilities, that sort of thing. Yes, things are going to get back to normal at one point, yes, we're all going to go out and entertain ourselves. And these are a big draw for tenants and buyers. So we should be looking at these, how accessible they are, how can they do the shopping and get around and get what they need to get done? You know, from this property, or is it going to be difficult because people don't want difficult they want ease easiness.
So look at the amenities within the general catchment area of the property that you might be considering or reverse the logic and target properties in with with good amenities in their particular catchment area.
And then we've got our n R stands for revenue. And revenue is a bit of a cheat because it allows me to spell the word star.
And so revenue in this context actually means jobs and inward investment. So the word of money is the money comes from jobs, it comes from investment, and investment can be public sector investment, or it could be you know, in terms of infrastructure projects, for example. And it could be private sector investment, for example, the building of a new Amazon warehouse, or I'm thinking of an offer on time. In fact, Amazon's everywhere right now, but a new Amazon warehouse is going to create jobs. In whole, for example, where I'm familiar with, I know that there's like a green sector expansion, there's a lot of businesses going into that into that location that's going to be boiling, it's going to boil up the market, it's gonna increase demand for housing, generally speaking, and what's the local economy like?
In other words, so they're the things that you need to take into consideration. Once you drill down, you've got an area generally. And if you start looking at a property, you know, you can sort of this is the hybrid, you know that the extra layer of the onion is somewhere in between, between area and between property, you're looking at the star criteria checklist. So I mentioned checklists a couple of times. If you'd like copies of my checklists, they're just really easy. Go to places that there was a lot more I wanted to talk about, actually, in terms of general principles, how to manage your, your money, etc.
So just, you know, general advice, but they're in the checklist. So I'll tell you what, if you're interested, just drop me an email podcast at the propertyvoice.net. I'll share my checklist. That'll get you going. And it'll help you in this context of undertaking proper due diligence. So, we've spoken a lot I've probably spoken more than I expected to in all honesty, on this topic today, hopefully with a little bit of semantics.
Though some personal stories, I didn't give you a personal story about the area location issues that I've had.
Let me give you one actually, before I finish. So yeah, I had a property bought in an area, bought in the in, in the states actually in Chicago, Southside of Chicago. And, and somebody brought in, burnt it down.
And they didn't just burn it down. They actually tried twice, unsuccessfully to burn it down to the third time they actually succeeded. So maybe the area wasn't the best, I guess is the point.
The when I was talking to the fire assessor, I was like, Well, you know, why do people do this? And they said, well, they're normally targeting one of two types to one or two people, either you as the owner, or the occupants, the tenants of the property. So maybe there was seven savories in there. I wasn't sure it's being managed by a letting agent, so I wasn't sure who they put in there. Needless to say, yes, the property was there was an arson attack. And he got burned down. Fortunately, nobody was hurt. And even more felt, fortunately for me, I had proper insurance. And that was okay.
There we go. So I've given some anecdotes, hopefully, I've made the topic of due diligence, a little less dull, boring, and painful. But trust me on this, as I mentioned, right in the beginning, trust, but verify, it's probably the biggest, most essential skill set that you could learn, develop and implement into your property business. You know, I've given you some examples of where I try to implement it. I've also told you of the pain actually, sometimes where I know what I know, I need to do, and I just haven't done for a couple of reasons, I could make my excuses to you, that relied on other people, for example, but I should never do that. I should always make my own checks. You should too. And hopefully, it will keep you safe out there.
Because there's a bunch of sharks who's waiting to take your money, basically. So get good at due diligence, and maybe that won't happen to you or happen less frequently. So yes, we're in the high ticket area, these things do happen. So take care of them. Well, there you go. I've rattled on a bit longer than I expected to, I thought it'd be a short episode is not sorry about that. But I'll draw a line. Now. If you'd like to see the show notes. There'll be over the website, thepropertyvoice.net as they usually are dropping emails, I mentioned podcasts that property voice.net if you want the checklist, so you just want to talk about this topic. happy to talk to you some initial notes on that no problem at all. But I guess you know, I'm gonna finish off now. Well, you know, all the remains to say really is thanks once again for listening again this week, and I look forward to talking to you and hear from you on the policy voice podcast next time. I know.
Thank you for listening today. Now head over to the property voice dotnet. For more inspirational content and get updates through our mailing list. Join us next time on the property voice podcast and if you enjoyed the show, please don't forget to rate us on iTunes.
That's all from me this week, remember if you want to talk about anything from today’s show, or just talk property investing more generally, email me at podcast@thepropertyvoice.net, I would be happy to hear from you! The show notes can be found at our website www.thepropertyvoice.net
Thanks very much for listening again this week, so all that left to say is ciao ciao!