What is "Due Diligence"

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Golfingworld

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When I was a lad this was known as "Conveyancing", can some of the experts out there please kindly clarify this cliche for all those interested parties. It seems to be a cliche that is thrown around with great ambiguity but when we are told to do our "due diligence"..what exactly do you mean? I thought is was the lawyers that did it, not the punters?
 
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EDP24

New Member
Good info LisaNic, Golfingworld you can also look up organisations like Opida and Fopdac
who can provide details
 
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Golfingworld

New Member
Do you have their web links please? Also to help unitiated buyers in relation to Brazil a message statement of the 10 key questions to ask, would be useful, as would, the 10 key documents to be checked and processed. Likewise, full banking procedures, transfer of funds in/out and registration of the title with whom and where. Good instructions on a site like this from experts would be invaluable to prospective buyers and enhance the site as an important reference source. This would be much more helpful than "do your due diligence" which is what I have seen quoted many times. To explain my point let's imagine that a prospective buyer is told "we have done the due diligence and everything is ok"..how do I know it is ok and how can I do my own research that what I am told is correct? A step by step guide would be invaluable such as..the 10 point statement of steps etc etc. This way it enhances confidence and makes a nervous buyer more comfortable, this can only be good for business and enhance the professionalism of the seller.
In other words, be specific as "general research covering both legal and personal requirements" means nothing to a guy that likes fun and sun but has heard that Brazil might be a "dodgy" place to invest.
 
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JMBroad

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Lawyers will only carry out a Due Diligence Report for you once you have retained them to do so (at obvious legal costs). The process can take anywhere from a day up to 8 weeks depending on the country and development in question.

That's why some people prefer to work with agencies who have already had their legal representatives do Due Diligence on the product to make sure that it can be sold. Otherwise you'll end up finding a place you like, putting a deposit down which you hope he won't run off with and then hoping that your lawyer will come back and tell you it's ok to buy. You'd be surprised at how many developments fail the reports and never make it past the agents to the general public for a variety of reasons.

Due Diliegence Reports which agents normally say they have carried out on a project refers to issues which can impact the legality of the sale, and includes land ownership, land restrictions, building licenses etc. What exactly each report entails will depend on the country, the development and the developer.
 
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Golfingworld

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Yes fine Mr Broad, but can somebody please be exact and say this document or that licenced by whom and where etc etc....for example a developer says it is done and ok..being the ultimate "I don't believe you" what has been checked, when, where, how and why? Step by step, detail by detail would help everyone. Again, I am trying to remove any ambiguity if possible, the less ambiguity the less risk the more confidence!
 
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beenthere

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Yes fine Mr Broad, but can somebody please be exact and say this document or that licenced by whom and where etc etc....for example a developer says it is done and ok..being the ultimate "I don't believe you" what has been checked, when, where, how and why? Step by step, detail by detail would help everyone. Again, I am trying to remove any ambiguity if possible, the less ambiguity the less risk the more confidence!
You just bought a place, so you should have this information at your finger tips if your lawyer did the due diligence for you.

So why not put it up here yourself? Or don't you have it?
 
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IndustryRE

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Due Dilligence is bantered around these days. I think there can be many levels of Due Dilligence but the main things to consider when investing should be:

1. Reputation of the developer.
2. Land Ownership Certificate
3. Building License
4. Planning Permission

You can normally get this information without spending any money and if a developer won't send this then I normally question is this going to be a safe place to invest.

After this then a good lawyer specialising in the country where the development is can get a full due dilligence report.
 
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Golfingworld

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You just bought a place, so you should have this information at your finger tips if your lawyer did the due diligence for you.

So why not put it up here yourself? Or don't you have it?
No I don't have it BT, I want other forum members to get the answer I wanted when I started. My "due diligence" was easy, first step was not to beleive anything I was told by anybody, second was to use my eyes and ears, third was to go there as much as possible, fourth was to see some bricks in a pile, fifth was to stand on the roof and look down and finally I employed an expert to verify what I had seen. But for those that aren't prepared or not able to do this at present or are just starting out then they might find it advantageous to read specifics rather than cliches. Does that help?
 
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JMBroad

New Member
Yes fine Mr Broad, but can somebody please be exact and say this document or that licenced by whom and where etc etc....for example a developer says it is done and ok..being the ultimate "I don't believe you" what has been checked, when, where, how and why? Step by step, detail by detail would help everyone. Again, I am trying to remove any ambiguity if possible, the less ambiguity the less risk the more confidence!
There is no "ultimate check-list" as far as I know. Everything changes depending on the project and the country you are looking at. It really is something you really have to get legal representation to do for you I'm afraid.

We do the same thing. When we are considering a project, it goes to the lawyers first and only when they come back to us with a "green light" (which as said can take up to 8 weeks) then we start to market it.

However having said that, if the developer can't prove ownership of the land and the latest building license (of the five that are required in Brasil) then we don't even waste time with it.
 
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JMBroad

New Member
No I don't have it BT, I want other forum members to get the answer I wanted when I started. My "due diligence" was easy, first step was not to beleive anything I was told by anybody, second was to use my eyes and ears, third was to go there as much as possible, fourth was to see some bricks in a pile, fifth was to stand on the roof and look down and finally I employed an expert to verify what I had seen. But for those that aren't prepared or not able to do this at present or are just starting out then they might find it advantageous to read specifics rather than cliches. Does that help?
I'd imagine that the only person who can answer you without "cliches" is a lawyer specialised in investment property in Brasil and seeing as most lawyers who may read investment forums make their living by doing these checks, I doubt any will be jumping at the opportunity of giving away their daily bread :(
 
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Golfingworld

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Ok so that's a start and I am only interested in Brazil....we now know about buidling licenses and ownership..so what are they called in Portuguese, is there a document number, who is it registered with, how do you verify it is real etc etc...let's do chapter and verse so that interested parties can learn on the job. You know my mission Mr Broad and that is to cut the glib statements, cut the "talking up" and get to the nitty gritty..rather like you..if I can't be convinced..."I wouldn't even waste time with it"! Clearly, the more professional sellers become, the more they are likely to sell.
 
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beenthere

Guest
No I don't have it BT, I want other forum members to get the answer I wanted when I started. My "due diligence" was easy, first step was not to beleive anything I was told by anybody, second was to use my eyes and ears, third was to go there as much as possible, fourth was to see some bricks in a pile, fifth was to stand on the roof and look down and finally I employed an expert to verify what I had seen. But for those that aren't prepared or not able to do this at present or are just starting out then they might find it advantageous to read specifics rather than cliches. Does that help?
So you didn't get a written report with a copy of all the documents with it. You have got big cojones buying there then ...
 
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Golfingworld

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No mate I didn't I asked the guy if he was a "reputable builder" and he said yes, so he must be ok!
 
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Golfingworld

New Member
Well done Lisa, someone is starting to shine through!
 
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Reindeer

New Member
:confused:Golfingworld,

It is interesting to hear about your comments on ''Due Diligence''. I completely understand where you are coming from and agree that when investing in foreign countries you should always act with caution (not every body is as honest as you are).

I would like to put my suggestions forward to you for consideration. However, my interests do not lay in Brazil but are with German property investment, which I suspect will be of a different rental market to what you are looking at (therefore not everything I talk about will necessarily hold true to Brazil). I do believe that the principles of property investment remain pretty much the same.

My view to purchasing property is that you need to conduct your own search this taking the form of 3 basic steps. (This is possibly what people refer to as DD).

1) Research the area you want to invest in. What is its potential.

2) What type of property do you want to purchase. What is your rental market.

3) Evaluate your financial costs to ensure its a viable investment.

These are only the basic steps, you will need to carry out further research to fully appreciate if your chosen investment is suitable. This can all be done by yourself on the net.

Once you feel comfortable from your research that your chosen area is good for investment, then you need to find a suitable property. When you have found a suitable property I would then suggest finding a lawyer to conduct your conveyancing.

I consider it very important to appoint your own lawyer as any lawyer employed by a broker will always share an interest with the broker (the lawyer will not act solely on your interests). Also any Notar involved will not conduct any conveyancing, they are employed only to oversee the sale of contact on a property between buyer and seller. (Not sure if the Notar process follows the same in Brazil).

I have posted comments about what you are talking about on another thread German Property - Buying in Germany. This may be of interest as I believe this is what you are trying to get a grasp of. I make reference to DD but having read this thread about DD, I have interpreted DD as the prospective purchasers research and what I initially referred to as DD in my thread would be conveyancing.

I think I am on the same wave length as you and hope this helps.

Good luck

Reindeer.







2)
 
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checkdryne

New Member
Ditto

Yes fine Mr Broad, but can somebody please be exact and say this document or that licenced by whom and where etc etc....for example a developer says it is done and ok..being the ultimate "I don't believe you" what has been checked, when, where, how and why? Step by step, detail by detail would help everyone. Again, I am trying to remove any ambiguity if possible, the less ambiguity the less risk the more confidence!
Being the newcomer to the forum and the real estate investment industry, I really appreciated your post. It is my sentiments exactly.

Have no fear, I plan to hold on tight and get as much knowledge as I can out of this forum.
 
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Golfingworld

New Member
1) Research the area you want to invest in. What is its potential.

2) What type of property do you want to purchase. What is your rental market.

3) Evaluate your financial costs to ensure its a viable investment.


Reindeer, thanks for your contribution, but couldn't this be best described as common sense? To give you an example, when a business is sold there is a process known as "due diligence" this means that accountants and lawyers go in and study the business for sale and look for loopholes in the proposition. What I am asking and so far Lisa has done the best job, is that instead of this well worn cliche being thrown around, someone actually gets down to the nitty gritty and that means this step, that step, this document and that one, where, how what it is called, where we can see examples etc etc. Quite honestly, if anyone went into overseas property without doing what you suggest, wouldn't they be a little insane...or are there really people out there that need telling that?
 
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checkdryne

New Member
Forewarned is forearmed...

1) Research the area you want to invest in. What is its potential.

2) What type of property do you want to purchase. What is your rental market.

3) Evaluate your financial costs to ensure its a viable investment.


Reindeer, thanks for your contribution, but couldn't this be best described as common sense? To give you an example, when a business is sold there is a process known as "due diligence" this means that accountants and lawyers go in and study the business for sale and look for loopholes in the proposition. What I am asking and so far Lisa has done the best job, is that instead of this well worn cliche being thrown around, someone actually gets down to the nitty gritty and that means this step, that step, this document and that one, where, how what it is called, where we can see examples etc etc. Quite honestly, if anyone went into overseas property without doing what you suggest, wouldn't they be a little insane...or are there really people out there that need telling that?
Thanks for such a clear but simple definition of due diligence. Not to mention, I also gathered the impression from your post that anyone considering investing overseas had better equip themselves with an accountant and an attorney before making a move. Is that so?
 
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Reindeer

New Member
What I was trying to say, although I'm not sure if it came across particularly well, is that I was trying to explain the difference between ''due diligence'' and ''conveyancing'' as I see it.

Initially when I was approached in the German property section about DD, I thought that this was referring to conveyancing, but then having read this site I interpreted DD as being different to conveyancing. As I explained DD is your own research based on the property which you intend to purchase as to whether this is a viable investment. Conveyancing is conducted by a lawyer that you appoint should you wish to appoint a lawyer. The conveyancing carried out by your lawyer would search the property to make sure no debts or other obligations are registered to the property and check the official general building plans for public obligations and restrictions.

Conveyancing by a lawyer is common practise in the UK when purchasing property. When buying property abroad why should you buy it differently than you would in the UK, unless you are able to conduct conveyancing yourself in a foreign language (I know I can't). Remember also, any lawyer employed by a broker to act on your behalf does not have your full interests at heart as they are indirectly employed by the broker.

Personally I would employ a lawyer as I am a cautious person but the choice to do so is entirely the buyers, possibly at their own risk. I would also suggest having a building survey report carried out by your own appointed surveyor, although this is the choice of the purchaser (how do you know your property hasn't got any structural hidden defects (just because it's new, doesn't mean it hasn't any, could have been built by a shoddy builder)). This again is something that most purchasers employ in the UK, so why be different when buying abroad.

I don't personally think you need an accountant when buying property as you should be able to calculate yourself if the property will earn you a financial return (unless you are investing in a business as a going concern). Establishing your real incoming and outgoings would form part of your DD.

I hope I have explained it clearer this time, however these are only my thoughts and its entirely down to the purchaser if they want to save money by excluding these services (possibly at their own peril).

The question to ask yourself, which I have already mentioned is "Why buy property differently abroad than you otherwise would in the UK".
 
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