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Wednesday, 31 January 2018

DUE DILIGENCE OF IMMOVABLE PROPERTY - AREAS TO LOOK AT AND THE REASONS WHY THEY ARE IMPORTANT

Many buyers of immovable property are not aware of the things they should look for when they intend to invest into real estate. As a result most people are defrauded as con men take advantage of such loop holes. In this article therefore, we will look at areas that a potential investor should look at and go a step further by explaining why these areas deserve attention. Explaining why attention should be given in the areas mentioned will also help a regular investor together with the novice because some people ignore certain things in property investing due to a lack of awareness about their importance. So I believe this article will be an eye opener to both veteran and newcomer in the real estate investing business.




Proof of ownership    

This is evidence in the form of original documents that the person selling a piece of property is indeed the legal owner of the property. An original ID of the owner should be furnished and its details should be the same with those of the person designated as buyer or transferee in the document that can be an agreement of sale or title deeds respectively. When doing such due diligence visiting the deeds office or the property developer (this depends with whether its title deeds or an agreement of sale) is indispensable. At this juncture enlisting professional assistance is also indispensable because there are some endorsements like caveats whose significance may not be deciphered by a layman’s mind yet they are important to know.

Why this is important? Avoiding fraudulent sale.
Fraudulent sale is one of the risks a property investor faces. There is no dispute that this issue exists so investors should be wary of it. The best way to mitigate against a fraudulent sale is thorough due diligence on proof of ownership as given above.

Structural integrity 

This refers to whether or not a piece of property is in a physical state good enough to provide for the needs for which it was constructed without becoming a danger to the occupants. Although it’s a long one real estate has a life span so it is important to check this out during due diligence because its one factor critical in determining structural integrity.  This helps you to ascertain whether or not a building is a demolition candidate.

Why this is important? Building component failure. 
The physical state of property directly affect its rent and value. If you are to letter discover that an investment you have purchased has serious cracks it can be difficult to secure good buyers or tenants as people fear the property can possibly collapse upon their workers, loved ones and possessions.  This constitute a type of risk which investors can mitigate against through thorough inspection of the property’s physical state before purchase.

Survey diagram 

This is proof that a piece of land, its dimensions and boundaries are legitimate and indeed exist. Before purchasing a piece of land its important to secure a survey diagram from the Surveyor General. Just think about it that the entire transaction is based upon the belief that the property exists according to how it is described in relevant documents therefore, it is of uttermost importance  to check out if it really exist.

Why its important? Adverse possession 
With the rise of property fraud in Zimbabwe many brand new houses are being demolished as they fall under the category of illegal structure because they where constructed on other people’s land. It is unfortunate for an individual to find oneself in this situation after years of saving hard earned cash. So going for what is known as search of survey diagram at the relevant government department is critical before one purchases land.

Price 

The price of real estate is the amount of money the market is willing to pay at a particular point in time. Experts call it the open market value. So this means that the price of real estate is that price which is determined by forces of supply and demand  not what a seller wants. During valuation in order to determine the price a property is compared only to similar properties within its vicinity. Comparing property to another in a different neighbourhood is tantamount to comparing  an apple to a banana. It does not work that way!

Why its important? Overpayment at purchase. 
If you purchase property without knowledge of the open market value one is likely to over pay. For investors overpayment reduces or destroy completely  their return on investment. Some believe in flipping and this will not work if you over pay at purchase because you may be unable to get a profit in the event that you sell .

DISCLAIMER
This article is made available for educational purposes only as well as to give you general information and a general understanding of real estate investing, not to provide specific advice. The article should not be used as a substitute for competent advice from licensed practitioners

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