Five Questions Every Investor Should Ask Before Buying

Most articles like this ask you to reflect on your goals. These are questions to put to the person selling you the deal. Ask them early, ask for the answers in writing, and pay attention to how the answer is delivered as much as what it contains.

I’ve answered all five myself at the end of each section, including where the answer isn’t in my favour. If a set of questions only works when it’s aimed at somebody else, it’s marketing rather than a test.

1. Who pays you, and does anyone else pay you on this transaction?

The single most useful question in property, and the one people are most reluctant to ask directly.

An estate agent is paid by the seller, as a percentage of what you pay. That isn’t a scandal, it’s the job, and it means their advice isn’t neutral. Some sourcers take a fee from you and also a commission from the seller or the agent on the same deal. That’s a different thing, and it should be disclosed without you having to dig.

A good answer names every party paying them on that transaction and offers to put it in the terms. A bad answer is “we work with both sides”, “the seller covers our costs so it’s free to you”, or a change of subject.

Mine: the buyer only. No commission from sellers, no commission from estate agents, no referral payments on the purchase, ever. If I’m ever paid by anyone but you, the deal isn’t one I should be bringing you.

2. Is your fee fixed, or a percentage of what I pay for the property?

A percentage fee means the sourcer earns more when you pay more. Every pound of discount they negotiate reduces their own income. You don’t need to assume bad faith for that to cost you money over a long negotiation.

Ask also when each part of the fee falls due, and what happens if the purchase collapses. A fee that’s fully paid before anything is agreed is a fee with nothing riding on the outcome.

A good answer is a fixed number, in writing, before work starts, weighted towards completion. A bad answer is a percentage, a fee that’s mostly payable up front, or a figure that arrives only after you have committed.

Mine: fixed, quoted on the first call and confirmed in writing before any work begins, paid 10% on instruction, 40% at memorandum of sale and 50% on completion. If a purchase falls through the search restarts and there’s no second fee. The whole model, including what it doesn’t cover, is on what it costs.

3. Show me a deal that went wrong

Anyone who has sourced a meaningful number of properties has had purchases collapse. Vendors change their minds, surveys come back badly, chains break, lenders retrade. A sourcer who can’t name one either has very little volume or isn’t telling you the truth.

You aren’t testing whether they fail. You’re testing whether they’ll tell you when something is going wrong, which is exactly what you need from someone acting for you 3,000 miles away.

A good answer is a specific case, what happened, and what they changed afterwards. A bad answer is a perfect record, or a story where the failure was entirely somebody else’s fault.

Mine: I’ve sourced 16 properties. Not every one of them completed, for reasons outside my control, because nothing is binding in England until exchange. The ones that did came in at 10 to 20% below market value, and the best of them, 23 Beech Grove, at 28% below its original asking price. That’s a small record and I publish it rather than rounding it up. It’s all on case studies.

4. Are you supervised, insured and covered by a redress scheme?

Property sourcing in the UK has a low barrier to entry. The checks that separate a business from a website are specific and verifiable:

• Supervision by HMRC for anti money laundering, or by another supervisory body
• Membership of a redress scheme, so you have somewhere to complain that isn’t them
• Professional indemnity insurance
• A registered company, with accounts filed
• ICO registration, since they’ll hold your personal data

A good answer gives you the registration numbers without being pushed. A bad answer is a logo on a website and no number behind it.

Then do the last step yourself: check the numbers on the registers rather than believing the badge. Companies House, the redress scheme’s own member search, and the ICO register are all free to search. Mine are listed on compliance, and I’d rather you verified them than took my word for it.

5. What is this rent figure based on, and what does it net?

Every deal pack quotes a rent. Ask where it came from. “Similar properties on the portal” is an asking rent, which isn’t the same as an achieved rent, and it says nothing about how long the property sat empty first.

Then ask for the full cost list to get to a net figure: management fees plus VAT, void allowance, maintenance, insurance, compliance work including the EPC, mortgage interest if you’re borrowing, service charge and ground rent if it’s leasehold, and tax. If you live abroad, remember your agent will normally deduct basic rate tax from the rent at source unless HMRC has approved otherwise.

A good answer shows the comparables, states the assumptions, and includes a void allowance. A bad answer is a gross yield in bold with no workings underneath.

Mine: you get the workings, including comparable sales, the rent basis, the EPC position and the flags. Where I think a deal is marginal I say so in the pack rather than after you’ve bought it.

And one to ask yourself

If this property were empty for three months and needed £4,000 of work in the same year, would that be uncomfortable or would it be a problem? If it would be a problem, the deal is too tight regardless of how good the yield looks.

What to do next

Send these five to whoever you’re considering, me included, and compare the answers side by side. The differences between good and bad sourcers show up in question one and question three far more reliably than in any brochure. How to choose a property investment advisor goes further on vetting, and common mistakes overseas investors make covers the errors these questions are designed to prevent.