Due Diligence part 2

In property circles we are all familiar with the phrase “due diligence” but it is often talked about in terms of “the deal” – the bricks, mortar, facts and figures of the deal. Equally as important but often overlooked is due diligence on the people you are working with. In this, the second part of our series on due diligence, we look at the people puzzle and talk about why checking out people, as well as property deals, is every bit as important.

We have all seen the posts on social media, you know the ones, the ones which make those of us who have been in business a while cringe. They are asking for money or JV partners, and they usually talk of amazing deals which “just cannot be missed” and are “only available today”. Further, most of us have come across the self-styled “property gurus,” sharks and unscrupulous people, who are out to con the unsuspecting of their hard-earned cash.

What is interesting though, is that when we hear the stories, we always think “this would never happen to me… I would never fall for this” and yet people do and, it’s often not just the newbie investors who fall for the patter and the stories, it’s the experienced ones too. In this article we are going to look at the practical things we should be doing to check out the people in the deal, whilst also looking at some of the psychological principles too. • Google the individual and the company (if there is one) • Check out both company and individual on Companies House • Request details of their background, experience, and track record

• Ask to speak to past clients or people who have invested or worked with them

• Search for them on social media and online forums

• Talk to people in your network – ask about the individual and the company

• Do all the usual due diligence on the deal itself – does it stack?

• Does their body language match their spoken language – what’s your “sense of them?”

The practical checks and questions you should ask yourself:

• Do you feel comfortable with them? • When things go wrong, as they often will, do you get a sense that they will be solution focused and working side by side with you or will they be finger pointing? • Are they excessively flattering or overly charming? • When you’ve spent time with them (over coffee etc.) how do they treat others? • Are you compromised? More on this on the next page.

In addition to the more tangible criteria above, I am a huge advocate of listening to your gut instinct. The message, which comes from somewhere deep inside the sum of your accumulated experiences, knowledge, and journey through life. Unfortunately, as human beings, we can all be compromised and, when we are, we can over-ride our gut instinct. The best examples of this are from things we do all the time – from that piece of cake we eat when we’re supposed to be watching calories, to the item we bought, that we haven’t budgeted for – we’ve all done it and we are past masters at it! So, how do we prevent being compromised? The answer is in knowing yourself, your triggers and having a plan – someone to sense check with, time to stop and think, a network to bounce ideas off. Some of the highly charged emotions, which make us override our gut instinct are:

• Excitement

• Greed

• Desperation

• Fear

Only you will know how you will feel, when you are in the grip of one of these emotions. When you feel that you may be, it’s time to stop, think, evaluate, and maybe sense check with someone outside the “deal” that you know and trust.

Others things to consider:

• Time – many successful transactions and partnerships are built over time.

Are you being coerced into moving too quickly because a deal is “only available today” or does it feel as though someone is trying to short circuit the natural flow and rhythm of the relationship? Ask yourself what’s the urgency? Why do I need to decide now? What will be different tomorrow?

• Influence v manipulation – know the difference between the two. Who benefits?

• Is one party over reliant on the other and is the partnership equitable?

• Ethics – do both parties share the same ethos?

• Do you like them? We touched on this before. Property Investors that we talk to are often surprised when we say that we don’t work with people we don’t like. If you don’t like someone, then your instincts are trying to tell you something, in our experience, you ignore them at your peril – several decades of business has taught us this one!

Last, but not least, if it feels too good to be true, the chances are that it is! Take the time you need to assess, sense check and stop, look and listen. If something still doesn’t feel right, then move on, there is always another deal and lots of super ethical people out there to partner with, that will feel right! www.kpa.co.uk